On this #givingtuesday, our radio topic was, of course, giving! I was delighted at all of the callers chiming in with the specific charities or general causes they supported and why. We discussed why we give and how to impart a generous spirit to our children. As a sometimes nerdy financial show, we talked about a very useful tool for giving - the Donor Advised Fund, as well as how, when and why you should give directly from your IRA. And just in case bad actors are appealing to your sense of generosity, we noted a few ways to make sure you aren't being taken advantage of by a scammer or just an ineffective charity.
Children and Values
When we talk to children abut money, we talk about three money buckets: Spend, Save and Share. For a child, sharing can be any sort of spending that benefits or delights others. For those of us with more formal financial plans, sharing means incorporating charitable giving into your financial plan.
Our first caller was a wonderful example of how to both incorporate your values into your giving and pass them on to your children effectively. He told how he would involve his children in tangible actions like feeding the homeless or giving gifts to those in need. These are great ways for a child to see the immediate impact of giving. When you give money, you can explain to them that it supports others who are doing the work that they did.
Money is a huge way we can live our values. One caller shared the charities she donated to and why. She donated to local soup kitchens and Parents for Public Schools, where she worked. She encouraged people to get involved as a volunteer or even board member to be even more effective with their giving. As a volunteer, you can put your time and effort to work for an organization directly. As a board member, you can help guide the organization and craft policies that can have an even bigger impact on the organization.
Donor Advised Funds and IRAs
An interesting tool for effective giving is the Donor Advised fund. As Nancy said on the show, you may think of this as a private foundation for yourself, with more benefits! These are accounts that you set up that you can contribute cash or appreciated assets to. You get a tax deduction when you make the contribution to the account, but have discretion to "advise" where those funds to in the future - and when! This is a great tool for someone who is particularly tax focused with their giving, or needs to make a sizable lump sum donation. You can contribute to the account any time, and allocate gifts to charity as you see fit. This can turn a lump sum gift into years of happy giving!
Why contribute appreciated assets instead of cash? If you give $100 to charity, and you are in a 25% tax bracket (for example), and happen to be itemizing deductions for your taxes, the charity gets $100 and you save $25 in income tax. This gives you a cost of roughly $75 to make an impact of $100. If you instead had bought a stock at $50 and donated it to charity when the price reached $100, the charity would still receive $100, but your tax benefits would get more interesting. Not only would you still save $25 in income tax, but you would avoid $7.50 in capital gains tax (which you would owe if you had sold the stock instead). So you save $32.50 in tax, and only spent $50 in the first place, to make a $100 impact! If you've had an investment account for a while, this may make sense for your giving plan. There are plenty of details I have glossed over, but more information can be found in this post from American Endowment Foundation.
On air, I made a 5 step process for getting your own Donor Advised Fund going.
- Open an account! (I recommended Schwab Charitable or American Endowment Foundation on the air)
- Contribute cash or appreciated stock.
- Select investments for the fund. (Think about how long you want the account to be around and if you want it to grow or if you will disburse it fairly soon)
- Direct gifts to charities of your choice! They get a check, you get the joy of sending it.
- Establish beneficiary charities or successor "advisers" for in case you die or just want to terminate the fund.
Donor advised funds are awesome tools for someone who wants to be very serious and organized about their giving. Check out the resources at Schwab Charitable to learn more in a better organized fashion.
Another good option for giving out of investment accounts is giving from your IRA. If you are over 70 1/2, you are requited to take money out of your traditional IRA each year. The problem is, this counts as pure income on your tax return. Instead of withdrawing the money and then donating it, it may make more sense to send it directly from your IRA to charity. The donation can satisfy your RMD and it doesn't even count as income to you.
You can see the benefit to this in two ways. Firstly, with the expanded standard deduction, if your charitable gift was not large enough to justify itemizing deductions, donating through your IRA maintains the same tax benefit, since you don't realize it as income. Secondly, since it doesn't as income in the first place, it lowers your income for considerations like taxability of Social Security benefits.
If you have an IRA, are over 70 1/2 and make charitable gifts anyway, check with your financial advisor to see if this makes sense for you.
Protecting Yourself While Giving!
Unfortunately not everyone who asks for your money has you or the supposed beneficiaries best interests at heart. There are always scams to protect yourself from. Two pieces of advice can go a long way to protecting you here.
Never give money over the phone. Even if someone is purporting to be from a charity you know, love, trust and have given to before, there is a possibility that this is a scam. Many charities publish names of donors and enough of your information is public that a fairly believable scam call would be trivial to cook up. I say all of this as someone who has worked a phone bank while in university! If someone solicits money from you over the phone, ask any questions you may have, but ultimately ask that they send you information to the address they have on file, or just tell them that you will make the donation yourself online. Verify for yourself that the donation information you get is from a trusted source. If entering payment information online, verify that the site is secure.
Background check any charities that are new to you. There are plenty of sites such as GuideStar or Charity Navigator that can provide extra information about charities and tools to help you understand how they work. If you can't find a charity here - it may not be real! These sites also contain information about where your money goes when you give.
How do you give?