Two Strategies for Getting More Out of Your Charitable Gift

As we enter the final quarter of the year, the deadline to execute or create a strategy for year-end charitable gifting is quickly approaching. We admire and encourage our clients to give to causes they are passionate about as part of their aspiration to live a full life. For most of our clients, giving tends to be reactive, responding to requests for gifts as they occur. Tax rates have risen and charitable gifting is one of the few areas where the IRS offers each tax payer the opportunity for strategic planning to reduce taxes.

Two strategies that are a win win for the charity and the donor are Donating Appreciated Securities and Donating Your IRA Required Minimum Distribution (RMD).

Donating Appreciated Securities

One of the least complex and most efficient ways to gift is by donating highly appreciated securities. With the S&P 500 up approximately 82% over the last three years (9/29/11 to 9/29/14), most people with nonqualified or taxable brokerage accounts likely have enough gains to benefit from this type of gifting. Donating appreciated securities allows you to avoid capital gains tax on earnings while also maintaining the itemized deduction on your tax return for the full gift.

Example: You want to gift $10,000 to charity. You can gift cash or 20 shares of Google currently trading at $500/share which you purchased for $200/share:

Gift to Charity

Income Tax Savings (30% Tax)

Capital Gains Tax Avoided (20% Tax)

Total Tax Benefit to You

Gift Google Shares

$10,000

$3,000

$1,200

$4,200

Gift Cash

$10,000

$3,000

N/A

$3,000

$0

+$1,200

As you can see in the example above, gifting shares results in a larger deduction and more tax savings than gifting cash, and the charity receives an equal gift. To use this technique, the security (Google in our example above) has to be held more than one year and the charity has to be capable of receiving stock, which most qualified charities are now equipped to do.

Donate Your IRA Required Minimum Distribution (RMD)

If you are currently retired, the IRA Charitable Rollover is likely where you will get the biggest bang for your buck. The Qualified Charitable Distribution (QCD) provision, which was established under the 2006 Pension Protection Act, allows an individual who is age 70½ or older to have up to $100,000 of IRA distributions from an individual retirement account made directly to charity. Not only does this allow for the IRA owner to exclude the distribution from gross income, but the charitable distribution can also be used to satisfy any IRA required minimum distributions (RMDs) for the year.

The Qualified Charitable Distribution is unique in that it benefits low income and high income retirees.

For low income earners excluding IRA distributions from income could result in…

1)    Lower Medicare premiums,

2)    Less or none of your Social Security being taxed,

3)    No tax on capital gains (if taxable income is under $73,800 for couples or $36,900 for singles).

For high income earners, donating part of your IRA could be a planning opportunity to…

1)    Avoid higher capital tax rates (15% rather than 23.8%),

2)    Escape itemized deduction phase-outs,

3)    Circumvent the 3.8% Medicare surtax on taxable income over $200,000 for singles or $250,000 for joint filers.

Unfortunately the provision has not been reinstated for 2014. The future of the IRA Charitable Rollover is currently stalled in the Senate, and is not likely to be revisited until after the November elections. That said, most experts believe it will be passed retroactively before year end.

Both donating appreciated securities and giving your required minimum distributions are great planning strategies to leverage your charitable contributions. Tax laws are constantly changing, and BDF continues to monitor the changing landscape in order to provide the best charitable gifting strategies for our clients. Please contact your wealth management team to discuss specific strategies for your situation.


Neil Teubel, CFP® is a Wealth Manager at BDF and also leads the Financial Planning Committee. The FPC champions the continual improvement of the firm’s planning processes so that every client gets the most comprehensive and thoughtful planning possible. The committee ensures BDF’s team has cutting-edge tools and the latest information covering the entire financial planning landscape to best serve our clients. Neil received an undergraduate degree in Financial Planning from the University of Illinois Urbana-Champaign and a master’s degree in Personal Financial Planning from Texas Tech University, where he earned his CERTIFIED FINANCIAL PLANNER™ certification.