Giving in 2021

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar. Charitable giving is top of mind this time of year. Joining me to discuss what people should know when making charitable gifts this year is Christine Benz. She's director of Personal Finance and Retirement Planning for Morningstar.

Hi, Christine. Nice to see you.

Christine Benz: Hi, Susan. Great to see you.

Dziubinski: Now, one piece of advice that you always give is that charitable giving isn't just for those who have deep pockets.

Benz: Absolutely.

Dziubinski: Anyone can be a charitable giver. So, how can smaller givers make effective charitable contributions and perhaps also get some sort of tax break from it?

Benz: Right. I think the starting point is researching the charities that you'll give to. And there are some great free resources that you can find online to help you research charities, to determine which charities will kind of give you the most bang for your buck and put the money straight to work to help people or animals or whatever your charity of choice is. So, start there. And then, also look for matching dollars. Employers oftentimes will match employees on their contributions. Sometimes, at certain charities, you'll have very large givers that will, for a limited window, offer to match smaller givers on their contributions. So, pay attention to where you can potentially double your donations and make the dollars work that much harder for you.

Dziubinski: Now, older adults who might not be itemizing can also get a break through contributing IRA assets to charity through something called the qualified charitable distribution. So, what are the benefits? How does that work?

Benz: Yeah, it's a really attractive provision. And basically, it means that if you are 70.5 or above, you are eligible to use what's called a qualified charitable distribution, and that means that you take money from your IRA, send it over to the charity or charities of your choice up to $100,000. And there are two big benefits of doing so. One is that it reduces the amount of your balance that's subject to those required minimum distributions. And the other one is that the amount that you do send to charity via the QCD is not taxable to you. So, it's a really attractive provision. Here again, even if you're not a large giver, you're nowhere close to $100,000 that you want to contribute, you can still take advantage of this QCD to help lower your tax bill.

Dziubinski: Now, what about donating appreciated securities or investments? When might that be appropriate for someone?

Benz: This can be such an attractive strategy. And I would point to it right now, especially given that we have such lofty markets--it seems like so many components of the U.S. stock market have gone up and up and up. And so, many investors do find themselves with these highly appreciated positions. Sometimes, it's company stock, or maybe it's just a fund that you purchased that is perhaps taking up too large a portion of your portfolio and adding risk to your portfolio. Those are ideal candidates for charitable contributions. Some charities, larger charities, will accept donations of individual stocks or even mutual funds.

You can also use what's called a donor-advised fund, and that means that when you contribute to the donor-advised fund, you are able to take a tax break on the amount of the contribution. It washes out the investment gains associated with that appreciated security. And then, you can take your time to get the money sent over to charity. So, donor-advised funds can be really nice tools. I think a key thing that I always point out is that the fees can really stack up. So, you want to make sure that you're not leaving the funds in the donor-advised fund too long, because the fees will start to eat away the amount that you'd eventually like to get to charity. So, do your homework on the donor-advised fund and don't let the funds linger inside the DAF. Get it contributed and get it working for charity.

Dziubinski: Got it. And then, lastly, this is more of a longer-term consideration, but what about the idea of making a charity the beneficiary of an investment account? How does that work, and who might that make sense for?

Benz: Yeah, I think this can be a great strategy where you're making the charity or charities even a partial beneficiary of an account. You won't earn a tax break in the here and now, but the amount that is contributed to charity eventually will escape taxation, will escape estate tax. So, this can be a nice strategy for large and small donors alike. I would urge people to consider it. And again, remember, it doesn't have to be your whole account. You can do partial beneficiaries on those accounts, and a charity might be one of them.

Dziubinski: Christine, thank you so much for your time today and for these smart ideas on making donations to charity and gifting. We appreciate your time.

Benz: Thank you so much, Susan.

Dziubinski: I'm Susan Dziubinski. Thanks for tuning in.