Joel Dresang: Bob, 2013 has been pretty good to a lot of investors. How does that figure in into gift-giving at the end of the year?
Bob Landaas: First of all, I think it’s a recognition of the concept of gratitude. The markets have done really well for most folks that are retired. They earned double to triple the normal withdrawal rates from their accounts. And this is the time of the year where we’re supposed to give thanks.
First of all, we’ve got to discuss the simple concept that charity starts at home.
People are allowed to give up to $14,000 a year to anybody they want without any tax consequence for the gift. I think that’s important to recognize for folks that are getting perhaps into their mid- to latter 70s, into their 80s. They’re looking, in many cases, at a limited number of years in their future.
And for me, what better way to share the wealth than have your kids, grandkids and others realize your generosity while you’re still alive instead of getting it after you’re dead and buried?
Joel: What about outside of the home, giving to charitable organizations?
Bob: This is the time of year when our mailboxes tend to get stuffed with solicitations. There are about 125,000 social service agencies in the United States. Every single one of them is looking for your money.
I think it’s important to do due diligence. As much as we research investments before we put our money in them, I think it’s important to do that on charities. As a rule of thumb, you shouldn’t give money away to folks that use more than 15% of your donation for administration and fundraising. You want your money to go to work.
Secondly, I talk to all sorts of folks that think it’s a pretty good idea to send dribs and drabs to dozens of charities. I think that’s a really bad idea. Number one, it’s not possible to do extensive due diligence on dozens of charities. And number two, I think you need to limit your focus to really what interests you.
If your interest is in the arts, fine. Try to articulate exactly what your mission is.
My personal mission is to help people that are lost, people that are last, people that have the least. So basic human needs of food, shelter, medicine – that’s where my own money goes.
But I tend to narrow it down to just a handful of groups where I can go deep, where I have a chance to understand exactly how they plan on spending my money. I’ve got an idea of how they’re financed. And I’ve had the opportunity to look at their IRS returns and to look at what they post online to make sure that’s how I want my money spent.
Joel: Speaking of the IRS, the IRS requires investors over the age of 70½ to have distributions out of their IRAs. How does that fit into giving?
Bob: There’s a really short window on that left. If it’s still 2013, there’s an opportunity if you’re older than 70½ to make gifts to your charities – up to $100,000 – and you don’t have to report the withdrawal on your IRA. You don’t get to deduct the charitable contribution, but it works out pretty slick from a tax standpoint.
The follow-up to that is for folks that give cash to charities, try to take a second look at your unrealized gains in your non-qualified portfolios because generally you want to give appreciated shares. That way, you’re avoiding the capital gains tax on the sale, and you get the deduction for the full amount.
Online guides for choosing and scrutinizing charities:
So for folks that are giving cash, think twice about that. In many cases, charities – and it’s rare that they don’t – have brokerage accounts set up for themselves so it’s easy to instruct your broker to transfer a certain number of shares to the brokerage account of the charity, and then they sell. That’s a much better way. The charity still gets the cash proceeds after they’ve sold the stock, but we get to avoid paying capital gains tax on the investment itself.
So in this season of really good market gains, I think it’s good to give thanks. It’s good to be grateful. It’s good to express your gratitude. Charity starts at home. Think about your family, your friends. The limit now is $14,000 per individual. But if you’ve got a couple of kids and a handful of grandkids, you multiply that out – husband and wife each giving $14,000 – you can give a fair amount of money away.
For 501(c)(3) legal charities, then it’s a little bit different. You want to think of giving appreciated stock. And for those of you that are above 70½, older than 70½ years old, and have money in their IRA account, that’s a really good way. As I said, the window closes on that at the end of this year.
(initially posted Dec. 2, 2013; revised Sept. 13, 2017)