By Kyle Wetters, CFP®
Co-Founder & Managing Partner
Tenet Wealth Partners
When working with clients who are charitably inclined, it’s fun for our team to support them in their efforts to give! Tenet Wealth Partners believes strongly in supporting charitable causes through both dollars and time, so when our clients express that same interest, we get excited to help.
While the top priority for our clients is to support the organizations and causes closest to their heart, we help develop effective strategies to make their dollars go even further making it a win for them and the charity.
Whether it’s something as straightforward as making a direct donation to an organization or considering something more nuanced like a charitable trust, there are many options to consider. Today we’ll look at Donor Advised Funds (DAF) and Qualified Charitable Distributions (QCD).
Donor Advised Funds (DAF)
A DAF is like your own personal charitable account that helps facilitate gifting to the charities you care about when you want to give. One attractive feature of a DAF is it’s convenience and ease of setup. You essentially name your fund, “Mr. & Mrs. Smith Charitable Fund” for example, make charitable contributions to your fund, and when you are ready you direct the desired amounts to be distributed to the charities of your choice. It is important to note that contributions to DAFs are considered completed gifts to charity and while you maintain control over several elements of the account, the funds are no longer available for personal use. Below are a few of the attractive features and uses of Donor Advised Funds:
Simplification of Administration and Record-Keeping
Another great option for gifting to charity if you are 70 ½ or older is through Qualified Charitable Distributions (QCDs) from a Traditional IRA. QCDs give you the ability to donate from your IRA directly to a charity (up to a maximum of $100,000 annually) and not have the distribution count as taxable income, as would normally be the case. When you reach age 72, when Required Minimum Distributions (RMD) are necessary, QCDs may go towards satisfying that requirement.
With the significant increase in the standard deduction a few years ago, the ability to itemize deductions on your tax return faces a much higher hurdle. The QCD allows you to not have to worry about itemizing, as the amount you give through the Qualified Distribution is not reported as taxable income.
With year-end approaching, many people are thinking about completing their annual charitable gifts. Donor Advised Funds (DAFs) and Qualified Charitable Distributions (QCDs) are only two of the many different charitable giving strategies available to donors.
Many times, the best plan is not in using a single strategy but combining multiple solutions and identifying what is most beneficial each year based on your specific situation. We always recommend consulting your tax preparer to determine the tax impact of your charitable giving decisions. At Tenet Wealth Partners, we work with our clients and their tax professionals to design charitable giving strategies that integrate their desire to support causes they cherish while maximizing the dollars donated.