As a financial consultant at Charles Schwab, I’ve noticed a keen interest among my clients, particularly baby boomers, in being good stewards of their assets after spending decades accumulating wealth. Many clients attend charitable events and often write checks to support causes they believe in. But I’ve found they’re also very interested in having conversations about how they can incorporate their charitable giving goals into their broader financial plans for the long term.
We find that when our clients stick to a plan, it helps them build wealth and meet their financial goals, which can put them in a better position to give with greater impact to the causes that are most meaningful to them. Plus, having a thoughtful strategy for your charitable giving can help you make the greatest impact with your generosity while also receiving some tax savings.
One of the most common ways my clients choose to make the most of their giving is through a donor-advised fund, which is a private fund administered by a third party on behalf of a donor for the purpose of managing charitable donations. You can open this type of account with a tax-deductible contribution and then make donations to public charities over time. The contribution is irrevocable, but you pick the charities that it will benefit, as long as they are 501(c)(3) organizations. You can contribute a variety of tax-deductible assets, including appreciated securities, real estate and cash, and the fund sponsor handles the administrative details.
For clients who are interested in making meaningful contributions while also adding another source of retirement income, charitable remainder trusts may be an appropriate choice. A charitable remainder trust is an irrevocable trust that you set up and make a contribution to in cash, investments and property. The trust provides you and other income beneficiaries you may select with distributions from the trust annually for life or for a period of time up to 20 years. After that period, the remainder of the trust passes to the named charity. There are various types of charitable trusts, and the rules governing them can be complex, so they can be expensive to set up and will require an attorney to draft the trust document.
There are a number of additional vehicles to carry out your giving goals as well. But remember, if you make charitable donations with a more holistic plan in place, you will likely have a better impact on the organizations you donate to and your overall financial picture.
And as you consider where to make your donations, check an organization’s tax status. Nearly all 501(c)(3) organizations are eligible to receive tax-deductible contributions, but it’s always best to ask the charity you plan to donate to about its tax status. Or you can just check the IRS’ online databased for qualified organizations.
Being a board member of Opera Saratoga, Whispering Angels of Saratoga, and the SPAC Action Council, I know the importance of these charitable contributions. Making them in a way that benefits both the nonprofit and the donor is the key to success.
Maureen Parker is a Financial Advisor at Charles Schwab with over 22 years of experience helping clients achieve their financial goals. Some content provided here has been compiled from previously published articles authored by various parties at Schwab.
A donor’s ability to claim itemized deductions is subject to a variety of limitations depending on the donor’s specific tax situation. Consult your tax advisor for more information. Information presented is for general informational purposes only and is not intended as personalized investment, tax or legal advice as individual situations vary. Charles Schwab does not provide tax or legal advice. Information presented is for general informational purposes only and is not intended as personalized investment advice. Where specific advice is necessary or appropriate, Charles Schwab recommends consultation with a qualified professional.