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When it comes to charitable giving, donating cash might not always be the most effective method.
There are several ways Bell Bank Wealth Management can help you with strategies to support causes you care about and ease your tax burden.
Here are three options to consider:
Using a Qualified Charitable Distribution
If you have a traditional IRA, once you turn 70½, you’re required to take a minimum distribution whether or not you need it. If you don’t need it to supplement your income, you could benefit from a qualified charitable distribution.
The IRS allows you to gift up to $100,000 of your required minimum distribution each year to tax-exempt charities, such as 501(c)(3) organizations. By remitting the required minimum distribution from the traditional IRA to the qualifying charity, those funds would not be included in your taxable income.
Keep in mind that the money has to be distributed from your traditional IRA directly to the qualifying charity. If you receive it first, you will be taxed on the distribution. Qualified charitable distributions cannot be paid from a Roth IRA or employer-sponsored retirement account.
We have many clients who use this tax-effective gifting strategy – supporting charities that are important to them while saving on taxes.
When you own stock that rises significantly in value, you may be charged capital gains tax when you choose to sell the investment. As a way to avoid the capital gains tax, you can choose to donate the highly appreciated stock to a tax-exempt organization. In turn, the nonprofit organization can sell the shares, obtaining the capital gains, often without being required to pay the capital gains tax.
Gifting highly appreciated stock is another effective strategy many clients use to complete their charitable giving while realizing a tax benefit for themselves.
You may also gift stock to an individual. Since the amount of capital gains tax owed is calculated based on the seller’s gross income, if you gift your shares of highly appreciated stock to someone in a lower income tax bracket, they may owe little to no capital gains tax should they decide to sell the stock.
Giving to a College Savings Plan
If one of your financial goals is to help your loved ones pay for college, you can consider establishing a 529 plan. While contributions to college savings plans are not tax-deductible for income tax purposes, when you contribute to a 529 account, you remove that value from your estate for estate tax purposes.
You may gift up to $15,000 each year to each recipient without having to file a gift tax return. When giving to a 529 plan, the IRS allows you to “front load” up to five years of annual gifts, so you could give up to $75,000 at one time without gift tax consequences. You have a lifetime gift tax exemption of $11.18 million.
In the 529 plan, earnings are not subject to federal income tax when the funds are used for the beneficiary’s qualified education expenses.
▶ As part of your financial planning team, we will work with your tax advisor and estate planning attorney to establish a plan to help you work toward your financial goals – which may include supporting the charities that matter to you.
Investing and wealth management products are not FDIC insured, have no bank guarantee, may lose value, are not a deposit and are not insured by any federal government agency.
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