I’M NOT ONE TO DIVE into the mysteries of the tax code in an effort to avoid paying Uncle Sam. But I’ve lately stumbled onto something that many others are already well-versed in and which has been around since 2006: qualified charitable distributions.
If I make a contribution from my traditional IRA directly to a charity, the withdrawal is excluded from the taxable income reported by my wife and me and, indeed, it counts toward my required minimum distribution.
SEVERAL YEARS AGO, I had lunch with a longtime friend, Jim. Over the course of 30 years, he’s had a tremendous impact on my life through his wise counsel and fine example. That day, Jim wanted to treat me to lunch, but I stepped in front of him in line and paid for us. After I’d paid, I could see the disappointment in Jim’s face. He turned to the woman behind him and proceeded to pay for her lunch.
THERE ARE FEW certainties in life, but December always brings a few. Our neighbors will decorate their houses with bright lights, our mailbox will be stuffed with letters asking for charitable donations and the financial pundits will speculate whether there’ll be a Santa Claus rally this year.
If you’re a regular reader of HumbleDollar, you know that a Santa Claus rally has the potential to fill our portfolios with extra dollars via higher stock and mutual fund prices.
I GAVE THE BEST PEP talk I could muster, but it didn’t help. Our family of four entered Walmart in solidarity, planning to buy gifts to fill an Operation Christmas Child shoebox. Two of us left early in disarray.
I had to wrestle my screaming two-year-old all the way to the car because she knew only one way to approach the toy department—with herself in mind. Eliza melted down over her refusal to part with a cheap plastic toy.
GOT CHARITABLE giving on your mind? Join the crowd. Many folks donate at this time of year, with their charitable giving driven by the charities themselves.
As solicitations arrive, people decide on a case-by-case basis whether to pull out their checkbooks. But some folks follow a more structured process, and that’s the approach I favor. It includes asking these three questions:
1. How much ideally would you like to give? As a starting point,
THE 2017 TAX CUTS and Jobs Act doubled the standard deduction. It’s estimated that 90% of households took the standard deduction in 2018, rather than itemizing, up from 69% in 2017.
The tax-code overhaul essentially means it costs more to donate to your favorite qualifying charities—unless you’re among the 10% whose itemized deductions exceed their standard deduction. To be sure, we shouldn’t give to charity solely for the potential tax benefit. Even if you itemize and hence you can deduct your gift,
FINANCIAL PLANNING is, for the most part, straightforward. You want to save enough for the future and then avoid a shortfall by investing those savings wisely. Pretty much every other topic in the world of personal finance—from asset allocation to paying taxes to safe withdrawal rates—can be viewed through the lens of those two overall goals.
But there’s one topic that isn’t straightforward at all, and that’s philanthropy. It’s not straightforward because it runs counter to those two fundamental goals.
AMERICANS ARE a generous people. They gave $471 billion to charity in 2020, according to Giving USA. Of that sum, 69% was contributed by individuals like you and me, as opposed to foundations or corporations, plus another 9% took the form of bequests.
Are you charitably inclined? Donor-advised funds can offer a tax-efficient way to make financial gifts, allowing folks to fund their own giving foundation and then direct money to charities for years to come.
MOST EVERYONE AGREES financial literacy should be taught to some degree in schools. Even the basics, like how to set up a bank or credit card account, or how to make a budget and avoid debt, should be explained to those soon to enter the workforce.
Another group of newcomers to the U.S. financial system who could use guidance are immigrants, particularly refugees. Jiab and I have been volunteering for a number of years to help refugees get acclimated to American life.
“THERE IS A VERY fine line between ‘hobby’ and ‘mental illness’,” according to humorist Dave Barry.
Some years ago, we had a weekend place—a cabin on acreage—which we greatly enjoyed, even if it did come with challenges. One thing I especially enjoyed: taking the kids on nighttime walks to see how many critters we could spot. That led to an interest in flashlights, and I collected a bunch of them. That, in turn, led to a keen interest in pocketknives.
MY MOM AND DAD split up when I was seven years old. Money was an issue for the rest of my childhood. Mom was rarely able to work fulltime and, according to her, child support and alimony were never enough.
When I started working a newspaper stand at age 12, I was expected to give 25% of my daily take for rent. Mom also demanded that I save at least 10%. Depending on the headlines,
IF YOU’RE IN YOUR 70s or older and you are charitably inclined, it’s time to get acquainted with one of your best financial friends: the qualified charitable distribution, or QCD.
A QCD is a distribution that’s made directly from your IRA to an organization eligible to receive tax-deductible contributions. A QCD counts toward your annual required minimum distribution, or RMD. But unlike a regular RMD, the QCD won’t add to your taxable income for the year—a potentially huge advantage.
GIVING GIFTS delivers significant emotional and health benefits, or so says the research. But I find much depends on how the actual giving takes place.
My best giving lesson occurred many years ago. At a rural busstop on the island of Crete, off the coast of Greece, I sat next to an old local woman dressed in ragged clothing and torn shoes. Neither of us spoke the other’s language. She carried with her a small bag of fresh peaches and motioned for me to take one.
WHEN I WAS IN THE workforce, it was easy to give to charity. Now that I’m semi-retired, it seems like more of a struggle—for four reasons:
Because I’m no longer employed fulltime, I can’t donate through payroll deduction, which used to make giving simple and automatic.
Leaving fulltime employment often results in reduced or uncertain income, and sometimes both. Today, I find it harder to know how much I can afford to give.
Retirement heightens thoughts of leaving a legacy to children and other heirs.
JUST BEFORE Thanksgiving in 2017, a heartwarming story hit the news. A young woman from Philadelphia named Katelyn McClure had run out of gas on the highway and found herself stranded. By chance, a homeless veteran named Johnny Bobbitt was nearby and, in an act of selflessness, he gave McClure his last $20 to buy gas.
After making it home safely, McClure wanted to express her gratitude, so she set up a GoFundMe page to help Bobbitt get back on his feet.