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Charitable giving: The options & benefits explained

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Charitable giving is a personal choice you make throughout your lifetime. It feels good to be generous with the resources entrusted to your care. And making a plan for your charitable donations can be even more empowering.

The good news with charitable giving is that you have several options to choose from:

  • You may want to model generosity with your family now—and benefit from certain tax advantages too.
  • Perhaps you are planning ahead to make gifts in the future, either during retirement or after your death.
  • You might consider using your charitable giving in such a way that allows you to receive income in retirement and provide for charities you support long after you have passed away.

Whatever your charitable goals, they can help enhance your broader financial goals for retirement and legacy planning. Learn more about your options for giving now and giving later.

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Strategically using charitable giving while you’re living

There may be tax advantages to donating money to causes you care about, but in most cases that’s not your top priority. What inspires you to give now is more likely to be a desire to share your passion for giving with your children or grandchildren. Perhaps you want to make a gift to an organization or cause that has had a particular impact on your life—whether it’s a college you attended or for medical research to cure the disease that took your loved one. No matter what your intent, there are ways to offer support now.

A donor-advised fund is an account established for giving

When you open a donor-advised fund (DAF), you’re making a contribution to an account earmarked for your future charitable donations. The money remains there until you decide on who will receive those donations. That can happen next month, in a few months or even years down the road.

Donor-advised funds are the fastest-growing options in charitable giving. As soon as you make the gift, the value of the gift (i.e., if it is cash, the amount given; if it is another type of asset, like real estate, its appraised value) is considered a donation and may be eligible as a tax deduction that year. Then you choose when to grant money from the fund and which charities to give it to. Any investment growth in the fund stays in the fund, so it’s not taxable and it increases how much you can give.

The versatility of donor-advised funds is another reason they are so popular. You have the flexibility to change your mind about which charities to support. You can support several charities with small or large gifts, during your lifetime and after you have passed away.

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Charitable Strategies: Donor-advised funds

Qualified charitable distributions from your IRA fulfill required minimum distributions

Once you reach age 72, your income could increase as you begin withdrawing money from your IRAs and 401(k). They’re called required minimum distributions, or RMDs, and they will be taxable as ordinary income.

One way to help reduce or eliminate the taxes you might pay on those dollars is called a qualified charitable distribution, or QCD. Rather than taking the money as an RMD, you designate a charitable organization to receive the money directly from your IRA.

You must be 70½ to complete a QCD, and only money from a traditional IRA can be used, versus your 401(k) or another employer-sponsored plan.

Qualified charitable distributions could be more beneficial than ever since the tax laws changed a few years ago and increased the standard deduction. You may not exceed that standard deduction with your usual annual gifts to charity. So, to get the tax advantage, a QCD might be a good option for you.

Gifts of stock and mutual funds can provide tax-efficiency

Gifts of stock and mutual funds are a potentially tax-efficientway to support causes you care about. If you own highly appreciated stock or mutual funds, you may face significant capital gains taxes when you sell those securities. You may avoid those tax consequences by giving the securities to a charitable foundation, such as Thrivent Charitable, and in turn, designating charities you support to receive ongoing gifts from a donor-advised fund established in your name.

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Charitable giving later in life or at death

You may not be in a position now to make the type or size of the gift you dream of making. Fortunately, there are several ways you might plan to give later in your lifetime or even after your death.

Trusts

Charitable remainder and charitable lead trusts are intended specifically for the purposes of giving.

A charitable remainder trust helps provide retirement income

A charitable remainder trust is set up so that you, or others you designate, have an income stream from the trust while you’re alive and a charity receives the remaining proceeds upon your death. You can choose different types of charitable remainder trusts, including:

A unitrust to support multiple charitable gifts.

With a unitrust you can make multiple gifts of cash and publicly traded securities. Another type of unitrust allows gifts of more complex assets, such as real estate and closely-held stock. Your income payments are calculated annually using a set percentage rate and the value of your trust’s assets each year.

An annuity trust to make a one-time gift.

An annuity trust is similar, but you fund it with a one-time gift of cash, publicly-traded securities or mutual funds. You then can receive ongoing fixed-income payments during your lifetime.

A charitable lead trust supports a charity during your lifetime.

A charitable lead trust provides support to a charity for a period you choose, and the remaining proceeds go to your family or others upon your death. You may think of it as the opposite of a charitable remainder trust in that you support the charity first and then your loved ones, rather than receiving income before supporting charities.

Charitable gift annuities help create a retirement income stream

With a charitable gift annuity, you give cash, publicly traded securities or mutual funds that will eventually help charities you care about. In the meantime, you receive a lifelong stream of income from your gift. You can choose to begin receiving payments immediately or defer payments until a future date. When you pass away, what’s left in the charitable gift annuity will provide ongoing, annual support to your favorite charities or causes for a timeframe you have established.

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Charitable giving after your death

There are many reasons to delay charitable giving until after you die. Anonymity may be important to you. You may want to help spare your loved ones from the significant tax consequences of inheriting your assets. Many charitable giving options allow you to retain this type of control even after your death, while potentially increasing the impact of your gifts to the charities and causes you care about.

Make a charity a beneficiary

You can designate a charitable foundation to receive beneficiary proceeds from your IRA or 401(k), annuity or life insurance policy. You can also give assets, such as stocks, bonds or real estate, through your will or revocable trust. Using either approach, your heirs may avoid paying income taxes on assets given, and the value of your estate may be reduced for estate tax purposes.

Gift life insurance proceeds

Gifts of life insurance may allow you to give a larger gift to the charities and causes you care about than you could otherwise. Just as life insurance provides for loved ones upon your death, it can support your favorite causes in a similar way. There are a variety of ways to give life insurance, and each has its own advantages. Your financial advisor can help you make sure your gift reflects your goals and priorities.

Read: What’s possible for a woman using charitable life insurance

Real estate gifts may help reduce the size of your estate

You can also give a gift of real estate. Called a gift of life estate, this giving option lets you continue to use or rent the property to generate income during your lifetime and potentially receive a charitable income tax deduction. At the time of your gift, you deed the property to a charitable foundation. A gift like this may reduce the size of your estate and possibly your tax liability.

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Offset potential tax increases with charitable giving

If your income tax situation—both today and in the future—plays a role in your charitable decisions, the time is now to begin planning. Current tax rates are some of the lowest since the government started taxing workers more than a hundred years ago. But no one can predict what will happen with income taxes in the future or how they may be affected by laws related to charitable giving.

Read more: Tools for tax-efficient charitable giving

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Work with a financial advisor on a charitable giving plan

Simply put, encouraging clients to give generously is essential to our purpose at Thrivent. The tools and strategies discussed here serve as suggestions.

Our experienced financial advisors can listen to your hopes and dreams and offer recommendations that will complement your goals.

Connect with a financial advisor near you for specific guidance on developing a giving strategy that reflects your unique financial plan and your charitable goals.

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The concepts in this article are intended for educational purposes only. They may not be suitable for your particular situation. The suitability of any specific product or strategy will be dependent upon your particular situation.

Donors must itemize deductions to receive a charitable income tax deduction. Charitable giving can result in tax, legal and financial consequences. Thrivent and its financial advisors do not provide legal, accounting or tax advice. Consult your attorney or tax professional.
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