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Tools for tax-efficient charitable giving

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Sharing your money and assets with others is a way you can give from the heart and help support the people and causes that mean the most to you. Charitable giving also opens up the potential to receive tax benefits based on when and how you give.

Ben Boline, a senior gift planner at Thrivent Charitable Impact & Investing® (Thrivent Charitable), helped us create this primer on how to continue giving generously while creating tax-efficient opportunities. Boline collaborates with Thrivent financial advisors and their clients on developing purposeful charitable giving plans for this year and beyond.

Donor-advised funds have become a popular giving tool. How do they work?

When you open a donor-advised fund (DAF), you’re making a contribution to an account earmarked for your future charitable donations. The money is invested and has the potential to grow until you decide which charities will receive those donations. That can happen next month, in a few months or even years down the road.

The objective of a DAF is to provide one place for your charitable giving dollars, so, ideally, you have a pool of funds to draw from consistently. You then can give to your favorite charities as you wish, and help minimize worry about dips in your giving since you’ve already allocated the dollars.

DAFs can be especially helpful to donors with variable incomes, like real estate agents or the self-employed. Thanks to the DAF, they still can give consistently year to year since they already have money in the fund to draw from, even when their income changes.

How can donor-advised funds work as a tax-efficiency tool?

If you’re facing a higher tax bill, you can open a DAF now and make contributions to help reduce that bill in the year you make the contribution. Your contribution is then invested (most likely tax-free) and remains in the DAF account until you choose to make a donation to a qualified charity or until your passing, at which point the fund is either passed on to future generations or is distributed to charities you have designated.

What’s more, a DAF can help you avoid tax-time paperwork headaches: Instead of tracking down a bunch of donation receipts, your entire giving record is in one place.

Can you give anonymously with donor-advised funds?

Yes, you can use donor-advised funds to give anonymously to charities. Perhaps you want to give to a disaster relief effort but don't want to be an ongoing donor. This way, you still can give generously during the crisis but without visibility.

How has the SECURE Act’s standard deduction increase impacted charitable giving?

The SECURE Act has made it more challenging for people to itemize their donations. Before the SECURE Act, let's say you had $12,000 of mortgage interest and state and local taxes to deduct. Then you may have had that $1,000 a month you gave to your church—a total of $12,000 annually. Together, these amounts would have put you over the standard deduction and let you itemize your donation.

However, because the standard deduction for 2023 is now $27,700 for jointly filing households and $13,850 for individuals, it's far less likely that your donations offer the same tax advantage. And while that is seldom the primary objective of Thrivent clients' charitable giving, Thrivent Charitable can help you be as strategic as possible.

You can work around this by bundling two or three years of donations. Instead of giving $12,000 to your church in 2024 and $12,000 in 2025, you can contribute $24,000 to your DAF this year. That amount plus this year's total deductions puts you over the standard deduction threshold for the 2023 tax year. For the next two years, you simply can take the standard deduction while donating to your church as always from your donor-advised fund.

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Charitable Strategies: Bundling Charitable Gifts

How can Qualified Charitable Distributions help retirees cope with SECURE Act 2.0 provisions?

Under the original Secure Act, people with traditional retirement plans such as 401(k)s, 403(b)s or traditional IRAs were to take required minimum distributions, or RMDs, at age 72. However, SECURE Act 2.0 changed the RMD start age using a sliding scale based on the year you were born.

  • 1950 or earlier: If you turned 72 in 2022 or earlier, there is no change to the RMD start age—it remains 72
  • Between 1951 and 1959: If you reach age 73 before 2033, the age for starting RMD is age 73.
  • 1960 or later: If you reach age 74 after 2032, your RMD start age is 75.

Taking an RMD also may mean higher Medicare premiums and Social Security taxes. However, if you're age 70½ or older, you can make tax-free Qualified Charitable Distributions (QCDs) of up to $100,000 each year from your qualified account—as long as it goes directly from your account to a charity. This way, you'll be able to make your RMDs without increasing your taxable income.

SECURE Act 2.0 provisions implement this being indexed for inflation beginning in 2024 ($105,000 annual limit in 2024). A one-time gift of $50,000 applies for QCDs to split-interest entities such as charitable remainder annuity trusts (CRATs), charitable remainder unitrusts (CRUTs) and charitable gift annuities (CGAs). Only QCD money can go into these entities.

Here's an example: Say your adjusted gross income (AGI) is $80,000. If you take a $10,000 distribution from your individual retirement account (IRA) and have it sent directly to a charity, your AGI remains $80,000. You don't even need to itemize to get that benefit. However, if you took that RMD and then wrote a check to your favorite charity for $10,000, your AGI would rise to $90,000. Unless you were able to itemize, you wouldn't be able to take that $10,000 deduction.

A QCD also can be useful if you've inherited an IRA as a non-spouse, from a parent for example, and are now subject to 10 years of required distributions. For many, this income may offer little more than an unwelcome tax hike. But with a QCD, you can funnel up to $100,000 annually to one or more charities. You could potentially circumvent the additional income tax while increasing your charitable giving.

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Charitable Strategies Qualified Charitable Distributions QCD

How can you help protect your charitable plan from anticipated tax increases now & in the future?

Charitable gift annuities can work to help mitigate current and future tax obligations by helping clients potentially earn greater returns on some lower-risk investments.

A charitable gift annuity also can help in diversifying assets. Say you have $100,000 of your employer’s company stock, and you’re anticipating retiring and cashing in some or all of it. You can contribute part of your low-cost-basis stock to your charitable gift annuity. You’ll potentially get a tax deduction today and a fixed income stream in retirement. What’s left upon your passing goes into your DAF, supporting your designated charities.

Testamentary Charitable Remainder Trusts: How can you gift your IRAs to family & charities?

With the passage of the SECURE Act, most non-spouse beneficiaries of an IRA must empty that inherited IRA within 10 years. A testamentary charitable remainder trust (TCRT) can help stretch payments for either a set term of years (up to 20 years) or for the heir’s lifetime.

Once the payment term ends, one or more charities you’ve designated will receive its assets. With a TCRT, your heirs could avoid having to immediately recognize their inheritance as taxable income, and you leave money to your charities of choice. Everyone can benefit.

The SECURE Act 2.0 provided a one-time exclusion for taxpayers who are at least age 70½ and must take distributions. It allows them to make a one-time $50,000 distribution from an IRA (or IRAs) to a charitable remainder trust and treat the contribution(s) as if it were a qualified charitable distribution made directly to a charity.

How can a financial advisor help support tax-efficient charitable giving?

Financial advisors are at the forefront of helping you make charitable giving a core element of your financial plan. When you work closely with a financial advisor, you’re on the way to gaining a greater sense of gratitude for what you’ve earned and more clarity than ever about how to help give generously to your family, community and society.

Don’t have a financial advisor? Connect with someone today.

Hypothetical examples are for illustrative purposes.  May not be representative of actual results.

Thrivent and its financial advisors do not provide legal, accounting or tax advice.  Consult your attorney or tax professional.

The concepts, tools and strategies discussed 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..

Thrivent Charitable Impact & Investing® is a public charity that serves individuals, organizations and the community through charitable planning, donor-advised funds and endowments. Thrivent Charitable Impact & Investing works collaboratively with Thrivent and its financial advisors. It is a separate legal entity from Thrivent, the marketing name for Thrivent Financial for Lutherans.

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