When Should You Open a Charitable Giving Account?

Transcript

“It’s Brian Preston, The Money Guy. Luke has a question. This past year, I will have donated over ten thousand dollars in charitable giving to my church. Awesome. When does it make sense to open up a charitable giving account?”

“Let me tell you how charitable accounts are most often used. The mechanism, and Brian, you can talk about the when does it make sense to do that. So, the way that charitable giving accounts are most often and most efficiently used is if, instead of giving cash, you have highly appreciated assets that you can give. So, most people, this is like stocks or ETFs or mutual funds. Maybe you bought it for five thousand dollars, and now it’s worth ten thousand dollars. You can make a donation of that appreciated security to the charitable gift fund. You’ll get a ten thousand dollar tax deduction in the year that you give it, and that five thousand dollar capital gain is completely wiped away. You never have to pay tax on that. So, it’s a wonderfully efficient way to use the charitable giving account or a charitable gift fund or a donor-advised fund. These are all different words for the same thing. That’s how they are most often used.”

“So, with that, Brian, if someone’s thinking should I be a charitable giving account, donor-advised fund, user? What are some of the ways someone might know that make sense for them in their situation?”

“Yeah, first I want to congratulate Luke. You’ve made it through the first. I have like three things I quickly wrote down. The first was just having the intent. I mean, if you’re giving ten thousand dollars a year, that’s awesome. You’re charitably minded. You have the intent. So, that leads to step two. Is there a better way to do this? There’s always hunting for that better mouse trap, that maximization strategy. A lot of people don’t realize that even though you’re very charitably minded, there’s a chance. I don’t know how big your mortgage is if you even have a mortgage. You might not be able to itemize. A lot of people who are still charitably minded still can’t itemize because itemized deductions have gotten so large. Now, look, you might still qualify for that front-end deduction of just a few hundred dollars. But to truly itemize your taxes for a married couple, I mean, you’re in mid-20s, 24, 25, so I don’t know. So, you have to take into account what your taxes up to ten thousand dollars plus and if you have any mortgage interest plus the charity. A lot of people, even with ten thousand dollars, might not cross that threshold. So, you ask yourself, well, wait a minute, maybe if I utilize the tool like a charitable giving account, I could stack my charitable giving. Now, that would require the discipline where maybe at one point, you have to give twenty thousand dollars to the charitable gift fund so then you could spread that giving out over the next year and a half to two years and then keep watching repeat that process over and over because that’s going to allow you then to maximize itemization every other year.”

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