IRA’s Vs 401Ks in Charitable Giving

The Strategic Path to Giving: IRAs vs. 401(k)s in Charitable Contributions

For fundraisers, understanding the nuances of retirement accounts like IRAs and 401(k)s in the context of charitable giving can be a game-changer. By grasping the distinct advantages of each, you can guide your donors to make more impactful gifts, while also harnessing potential tax benefits. Let’s explore the unique characteristics of IRAs and 401(k)s in philanthropy, and how they could influence your donor’s decisions both during their lifetime and upon their passing.

IRAs: An Invaluable Tool for Charitable Distributions

Individual Retirement Accounts (IRAs) offer a seamless avenue for donors looking to make charitable contributions. One of the most compelling features of an IRA is the ability to make Qualified Charitable Distributions (QCDs). If your donors are age 70½ or older, they can directly transfer funds to a qualified charity without the distribution counting as taxable income. An important statistic to share is that individuals can donate up to \$100,000 annually through a QCD. This not only serves as a significant benefit to the charity but also helps the donor manage their Adjusted Gross Income (AGI) and reduce their taxable income.

A testimonial from Mary Johnson, a seasoned donor, expresses the ease of using her IRA to give back: “Making a QCD from my IRA was effortless. Not only did I avoid taxes on the distribution, but knowing my contribution directly supported a cause dear to my heart was incredibly fulfilling.”

401(k)s: Maximizing Deductions in Charitable Strategies

While 401(k)s don’t offer the same QCD benefit as IRAs, they can still play a pivotal role in charitable giving. Contributions made from these accounts are often deducted from a donor’s taxable income for the year. For donors who are still working and contributing to a 401(k), the combination of tax-deferred growth and potential deductible charitable gifts is a powerful incentive.

The tax efficiency of a donation from a 401(k) can significantly reduce a donor’s tax burden. This is especially true for individuals who find themselves in a higher tax bracket and are seeking ways to offset their tax liability. It’s important to remember that timing matters; withdrawals and donations must adhere to specific rules to optimize tax advantages.

Estate Planning: Leaving a Charitable Legacy

Beyond immediate contributions, IRAs and 401(k)s also serve as valuable tools in estate planning. Donations bequeathed posthumously can help reduce the size of the estate, which in turn may lower the overall estate tax burden. This aspect is crucially important for donors who are mindful of the legacy they leave behind.

For donors considering this route, it’s essential they consult with financial advisors to ensure that their estate plans and beneficiary designations are set up in alignment with their philanthropic desires.

Navigating the Tax Landscape

Tax implications of charitable contributions through retirement accounts can be complex and vary depending on the individual’s situation. The age at which a donor makes a withdrawal or a donation, for instance, can significantly influence the tax outcomes. To this end, we offer a free downloadable resource that simplifies the tax considerations for charitable giving through IRAs and 401(k)s.

As fundraisers, you play a vital role in educating and enabling your donors to make informed decisions. Remember, every donor’s situation is unique; the best approach is often to facilitate a conversation between them, their financial advisor, and your organization.

A Call to Action for Impactful Giving

Knowledge is power in the realm of charitable giving. If you are a donor, reach out to discuss how your IRA or 401(k) can be leveraged for maximum impact. And if you’re a fundraiser, let us arm you with the information and resources you need to drive meaningful conversations with your donors.

Together, we can chart a philanthropic course that benefits the giver, your cause, and the broader community. Contact us today to learn more about how strategic charitable giving can become part of your legacy.

In conclusion, whether your donors are drawn to the immediate benefits of an IRA for charitable giving or the deductibility and estate planning advantages of a 401(k), their generosity can make a world of difference. By staying current on the complexities and opportunities within each option, we can ensure that every donation yields the greatest benefit for all parties.

WHO YOU GONNA CALL?

Anyone can be a planned giving prospect; however some are more likely than others to make a planned gift intention or commitment.

Here are some traits and behavior exhibited by donors that could signal that they are a good PG prospect. (more…)

MARKETING PLANS: COMMON SENSE BUT NOT COMMON PRACTICE

Marketing can be expensive and, depending on how it’s executed, a drain on internal resources. To get the most return on your investment of time and money, start with a written marketing plan. Your marketing plan can be a simple one-pager that includes: (more…)

GIFT ACCEPTANCE POLICIES

While most planned gifts are simple beneficiary gifts, you will most likely encounter a donor who would like to make a gift beyond the “ordinary.” What will you do when a donor wants to donate their house, business, art collection, or property? Does the property have environmental implications? How will you handle those opportunities? How will you ensure that you minimize your organization’s risk and keep the donor happy? Written gift acceptance policies will help you do all this.

Important: Never reject a noncash gift opportunity without giving it serious consideration. There are strategies your donor can implement like starting an LLC or a Donor Advised Fund and donating the asset there. There are also organizations like Charitable Solutions (Bryan Clontz and team) who can potentially handle the gift transaction on your behalf, relieving you of all risk and work. They take a very small fee and send you a check. (more…)

COUNTING VS ACCOUNTING

Many people ask me how to count planned gifts. The first thing to keep in mind is that there is a difference between counting and accounting. “Accounting” relates to how gifts are counted with the finance office. These are the numbers we report on our tax returns. “Counting” relates to how you report on gift totals to donors and the general public. These are the numbers we use on our website, in our marketing materials, and in our presentations. The two numbers will never be the same.

There are several associations that publish recommended counting guidelines for planned gifts. The two my colleagues and I recommend are the CASE (Council for Advancement and Support of Education) gift-counting standards for counting outright gifts and the Partnership for Philanthropic Planning (PPP) gift-counting standards for counting future gifts.

They suggest you count gifts in one of 3 categories: (more…)

PG GOAL SETTING AND TRACKING

Few organizations have goals around planned giving. We don’t want to bet on our donors dying, so I am not suggesting you set a goal for realizing planned gifts. I do, however, suggest goals that lead to and include planned gift intentions.

Here are some examples of simple metrics to help you increase your PG activity. (more…)