By Jonathan Freeman, CFP®, CFA, CIMA®

The World Giving Index consistently ranks the United States as one of the most charitable countries in the world.  However, according to Giving USA ™, after rising 5.2% in 2017, charitable giving by individuals declined by 1.1% in 2018 (though gifts from foundations and corporations grew enough to offset this).  While market volatility in the fourth quarter may have had an impact on giving levels, the Tax Cuts and Jobs Act of 2017 may have also contributed to this reduction.  By significantly increasing the standard deduction, while capping the state and local deduction at $10,000 and eliminating many other miscellaneous deductions, the percentage of people able to itemize their charitable deductions went down dramatically that same year.

Given these recent tax changes and the impact of the new SECURE Act, here are several suggestions that might financially benefit both society and individual donors.

Donor Advised Funds:
One popular tax strategy is to make a charitable contribution once every few ­years while taking the standard deduction for all other years.  Of course, the problem with doing this is that most people want their charities of choice to receive consistent gifts every year. This is where a donor-advised fund becomes a useful tool.  There are many great community foundations that offer donor-advised funds, and there are national organizations set up by companies like Vanguard and Fidelity that offer relatively low-cost options.  With some minor limitations, a donor-advised fund, once established, allows the donor to control the timing and amount of gifts given to qualified charitable organizations.  Another advantage of a donor-advised fund is the ability to add family members to the list of people who can designate gifts to the fund in the future, even after the original donor passes away.

Qualified Charitable Distributions:
More often than not, a qualified charitable distribution (QCD) will make the most financial sense for people over the age of 70 ½.  Many people in retirement no longer have enough deductions to itemize, so any charitable gifts will not reduce their tax burden.  However, they can give up to $100,000 per year to charitable organizations (with some limitations, such as private foundations and donor-advised funds) directly from their IRAs.  These QCDs will count toward their required distributions, so the net effect is that the donor still receives a charitable deduction because they reduced their taxable required minimum distributions.

Another benefit is that QCDs can reduce the donor’s Adjusted Gross Income (AGI).  AGI is used to establish the cost of Medicare B and Medicare D premiums, and people with a high AGI might have to pay a higher premium, known as the income-related monthly adjustment amount or IRMAA.  For some donors, if QCDs reduce their required minimum distributions, they may enjoy a reduction in both their tax bill and Medicare premiums.

One more thing to note about QCDs is that you still need to keep receipts and let your tax preparer know the total amount of charitable distributions that went directly from your IRA; your 1099R forms will not reflect those donations.

Charity as IRA Beneficiary:
Many people include bequests to charity in their wills.  Because of the SECURE Act and the elimination of the stretch IRA (i.e. the ten year distribution rule for most non-spousal beneficiaries), it often makes more sense to remove charities from your will and add them to your IRA (or 401k, SEP IRA, and/or annuity) beneficiary form.  In general, your heirs will benefit more from receiving non-qualified assets, Roth IRAs, and insurance.  Non-qualified assets still enjoy a step-up in cost basis, and while Roth IRAs have lost their ability to stretch for the next generation, they are still tax free.

Deduction Limitations:
While donors can deduct up to 60% of their AGI with cash gifts, after this historic bull market, it may make more sense to consider gifts of appreciated securities.  Securities with long term gains can receive a deduction of the full market value, so donors will avoid capital gains taxation and receive a deduction for the full value of the gift.  Donors can give mixed donations of cash and appreciated assets up to 50% of their AGI.  If the donor is not able to fully deduct the contribution in one calendar year, they can still carry forward unused deductions for five years.  It is important to note that if a donor does not itemize their deductions during these years, the carry forward donations might not have any benefit.

If you have any questions about these or any other giving strategies, please contact your Financial Advisor at Stonebridge Financial Group.  We strongly believe in supporting the communities where we live and work.  That is why we are prepared to help you and your CPAs and attorneys determine what is the best approach to financially benefit both you and your favorite charities.


Jonathan FreemanAs one of the Directors of Stonebridge Financial Group, Jonathan’s goal is to help lead an organization that strives to provide the highest degree of client service, integrity, and professionalism. With disciplined investment strategies that emphasize risk-adjusted returns, cost, and tax efficiency, his objective is to help the individuals, families, corporations, and nonprofit organizations that he works with to achieve their financial goals.