One of the many things that you may think about as you get closer to retirement (or perhaps you are already retired), is how your charitable giving may change. Below are a few common questions or scenarios we see as financial planners:
Your charitable giving may change focus from money to more time
You may feel like you have fewer financial resources to give
You may want to make sure your charitable giving continues beyond your lifetime
Your tax situation may change so your contributions are no longer deductible
Let’s explore each of these further.
Fewer Financial Resources
When planning your retirement you should consider what your income will look like and consider creating a retirement paycheck. This will help give you an idea of what you can put towards charitable contributions in retirement. You may realize that you can not give as much as you have in the past.
One way to alleviate this feeling is to “pre-fund” some of your charitable giving by setting up and funding a donor-advised fund (DAF) while you are still working. This enables you to put more money aside while you are still working, and possibly while you are in a higher tax bracket, with the idea being you will make grants from this pool of money during your early retirement years.
You can set up a DAF with a community foundation (like the Minneapolis Foundation, Minnesota Women’s Foundation, Minnesota Community Foundation), a foundation with a specific focus (Lutheran, Catholic, Episcopal Relief and Development etc.) or with an investment custodian (Schwab, Fidelity, Vanguard, etc.). Donor Advised Funds can be funded with assets and/or cash. The “deduction” is the market value of the asset that was contributed. You then can use the DAF to do your charitable giving in the years to come. Things like administrative fees and minimum grant size vary between organizations, but most DAFs make it very easy to do your charitable giving.
You could also choose to donate where charitable contributions are being matched. For example, Give to the Max Day in Minnesota takes place each November as a one-day initiative started by GiveMN in 2009 to help raise money for participating nonprofit organizations and schools. Now, over 6,000 nonprofits across the state participate and many of them have partners that match donations during that time so that every gift is even more impactful
Change of Focus from Money to Time
While expendable finances may diminish in retirement, you will probably find that you’ll have more time on your hands. If you’re worried about not being able to contribute to charitable causes as much financially, volunteering could be a great way to spend your newfound freedom!
Some organizations are heavily dependent on volunteer hours. Bridging, Second Harvest Heartland, and Twin Cities Habitat for Humanity are all great nonprofits local to Minnesota, and Habitat for Humanity even has volunteer opportunities specifically for retirees (and at ReStore for anyone who isn’t a fan of manual labor).
A great place to check for opportunities is in your local paper. In Minneapolis/St. Paul, the Sunday Star Tribune runs a column of local organizations that are need volunteers. There are also websites like VolunteerMatch.org that help match volunteers and organizations based on interests and skills.
Extend your Charitable Giving Beyond your Lifetime
When you look at your estate plans, do they reflect what has been important to you during your life? If you’ve been a charitable giver, are there charities that you’d like to continue to fund after death? You can do this in a number of ways:
Beneficiary Designation. Remember that assets with a beneficiary are transferred to the beneficiary outside of what your will says. Assets that have beneficiary designations are life insurance, retirement plans, and Transfer on Death (TOD) or Payable on Death (POD) designations. One of the most tax-efficient ways is to name charities as the beneficiaries of a retirement plan, which means that charities get the funds and nobody has to pay income tax on the distributions.
Your Will or Trust. Another way to designate funds to charities is through your will or trust document.
A Donor Advised Fund (DAF). If you have set up a DAF during your lifetime, you probably decided as to what happens to it at your death. Options include naming successor advisors (often your adult children or other family members) that will continue to use the DAF after you have died. You may also designate specific charities to receive what is in your DAF at death. Another option includes having the funds go into the main charitable fund that is sponsoring your DAF.
Learn more about gifting money: How to Create a Tax Savvy Plan for Larger Sums
Charitable Contributions are no Longer Tax Deductible
Since the 2018 Tax Cuts and Jobs Act (TCJA) dramatically changed the standard deduction and altered what could be itemized through 2025, the main strategy here is to group your contributions. You can find a far more detailed explanation in our Strategic Philanthropy article, but for example, if you save up your charitable contributions over the course of a few years rather than donating in smaller amounts each year, you may be able to itemize and receive the tax deduction of your contribution. Another option is that once you are 70 1/2, you can give up to $100,000 per year from your Individual Retirement Account (IRA) directly to charitable organizations which reduces your taxable income. For instance, if your RMD from your IRA was $50,000 and you gave $10,000 of that to charity, you would only be taxed on $40,000.
Planning for Your Legacy
If charitable giving has been important to you during your life, we encourage you to consider having it part of your estate plan. You may have received information from some of the charities you support asking you to make a “planned gift” by naming them in your will or beneficiary designation. Many organizations actively work with donors during their lifetimes to keep them informed of what is going on with the organization and why your planned gift matters so much to the organization.
We encourage clients to consider whether they want their charitable giving to continue after death, as well as answer the question as to how much is enough, too little, or too much to leave to family members.