October 30, 2024
’Tis the Season for Year-End Giving Solutions
As the year draws to a close, the spirit of generosity often takes center stage. As a professional advisor, you play a crucial role in helping your clients make meaningful year-end gifts. We regularly work with advisors to implement year-end giving plans with their clients. To assist you with your year-end planning discussions, we wanted to share some common year-end planning situations we see, and the solutions advisors have used to address them.
Situation #1: Your client hasn’t taken their required minimum distributions.
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If your clients haven't taken their required minimum distributions this year, consider using a qualified charitable distribution for their year-end giving. |
Planning Idea: Consider funding their gifts with qualified charitable distributions (QCDs). Your client can make up to $105,000 in QCDs (transfers directly from their traditional IRA to a qualified charity or a qualifying fund at that charity) during 2024. QCDs will not be included in your client’s taxable income and will be counted towards their required minimum distribution. While contributions to a donor advised fund typically don’t qualify for QCD treatment, contributions to other types of funds at MCF (for example, nonprofit endowment funds, field of interest funds, donor designated funds, or MCF’s Community Impact or Priority funds) may qualify.
NOTE: Certain transfers, such as those from an ongoing SEP or SIMPLE IRA, generally do not qualify as QCDs.
Situation #2: Your client is age 70.5 and wants to reduce the balance of their IRA prior to taking required minimum distributions.
Planning Idea: Consider making gifts now using QCDs to reduce the balance of their IRA. Under current law, people are eligible to make QCDs starting at age 70.5. Therefore, even if your client is not yet required to take required minimum distributions, they can make distributions from their traditional IRA to reduce their account balance (and their annual required minimum distribution amount) by the time they reach age 73.
Situation #3. Your client wants to make a legacy gift to their favorite nonprofit organization but is concerned about meeting their lifetime income needs.
Planning Idea: Consider establishing a charitable gift annuity (CGA). CGAs can be great options for clients who want to make legacy gifts to nonprofit organizations (or to funds at MCF established to benefit those nonprofits) while receiving quarterly or annual annuity payments during their lifetimes. After establishing a CGA, a donor is eligible to take an immediate income tax deduction equal to the estimated value of their remainder gift, which is determined using IRS actuarial tables. The tax treatment of the donor’s annuity payments is determined by the tax attributes of the assets contributed to the CGA. After the donor’s death, any amount remaining in their CGA will be transferred to the organization or fund they selected.
NOTE: The SECURE 2.0 Act of 2022 allows people to make a one-time transfer of up to $53,000 in QCDs to a CGA. Your clients may want to take advantage of this new opportunity to create a CGA while annuity rates remain relatively high. Note, however, that the tax treatment of CGAs created using QCDs is different than for those funded with other assets.
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Donor-advised funds can offer your clients flexibility in their year-to-year giving. |
Situation #4: Your client wants to maintain flexibility in their giving from year to year.
Planning Idea: Consider giving through a donor-advised fund. If your client is planning for a charitable tax deduction this year and wants to retain the flexibility to distribute gifts to nonprofits later or over multiple years, a donor-advised fund may meet their needs. Find out more about establishing a donor-advised fund with MCF here.
Situation #5: Your client benefits from the standard deduction but wants to maximize the tax benefit of their giving.
Planning Idea: Consider developing a giving plan that “bunches” gifts into specific years. By “bunching” their giving, a client may be able to maximize the benefit of their itemized deductions, resulting in greater tax savings. The standard deductions for 2024 are $14,600 for single individuals and married couples filing separately, $21,900 for heads of household, and $29,200 for married couples filing jointly. Because these standard deduction amounts are relatively high, it may be beneficial for clients to concentrate their charitable giving into specific years to take advantage of the benefits of itemizing their deductions in those years while using the standard deduction in other years.
Situation #6: Your client wants to donate non-cash assets to their favorite nonprofit by year-end.
Planning Idea: Be proactive in notifying the nonprofit of the client’s gift, and be sure you understand that nonprofit’s gift processing deadlines. Charitable organizations vary in their ability to accept and manage non-cash gifts. Some may have capacity to handle a wide range of assets, including publicly traded securities, real estate holdings and tangible personal property (for example, cars, artwork or collectibles). Others may have more limited capacity or may specialize in managing specific types of assets aligned with their mission.
Before contacting the organization your client wants to support, visit its website to see whether the organization has posted its gift acceptance policy. The gift acceptance policy will explain the review and acceptance process for different asset types, as well as any assets the nonprofit will not accept.
To learn more about helping your clients make effective gifts of non-cash assets, see our August 2024 blog post, “5 Crucial Questions to Ask When Helping Your Clients Make a Gift of Non-Cash Assets.”
Situation #7: Your client doesn’t know where to start when it comes to charitable giving.
Planning Idea: MCF has staff and other resources that can help! If your client wants to support their community but isn’t sure where to start, connect them with a member of MCF’s Donor Engagement Team to discuss charitable giving options. Working with a philanthropic advisor at MCF gives you and your clients access to our knowledge of the local nonprofit community and opportunities to make a difference in ways that matter to them.
If your client has an area of interest or ideas about a specific organization they’d like to support and wants to do some initial research on their own, MCF’s Greater Madison Nonprofit Directory can be great resource for them. This directory provides a comprehensive online guide to charitable organizations in our region, allowing users to sort broadly by area of interest, organization size or location. It also provides detailed information on a specific organization’s financial health, programs, operations and impact.
Please note that this article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.