One of the most rewarding things you can do is to give back. Including charitable giving as part of your financial plan and your estate plan is not only emotionally gratifying — it can reduce estate taxes, too.
Assess your own financial situation first
It’s important to thoroughly assess how much money you need to support yourself in retirement. So before you offer financial aid to others, make sure you have sufficient resources to contribute.
Careful planning can benefit both you and your charity
In addition to the emotional satisfaction you can derive from helping worthy causes, you can also realize some tax benefits. The full amount of your charitable gift may be deducted from the value of your taxable estate.
- For example, the Pension Protection Act of 2006 (PPA) makes it easier and more beneficial for retirees to contribute to charitable organizations.
If you're over age 70½, you can donate up to $100,000 directly from your IRA (traditional or Roth), tax free, to a qualified charity.
Options for charitable giving
1. Make an outright charitable bequest in your will
- The easiest and most direct way to make a charitable gift
- Only requires a short clause in your will
- Appropriate for smaller gifts
2. Designate a charity as the beneficiary of an IRA or retirement plan
- Available for IRAs or employer-sponsored plans such as 401(k)s and 403(b)s
- Can be deducted for estate tax purposes
- The charity will not have to pay income tax on the funds
3. Use a charitable trust
- Charitable lead trust. Pays income to your chosen charity for a certain period during your lifetime or after your death. Any remaining trust principle passes to your heirs.
- Charitable remainder trust. Pays income to family members for a certain period during your lifetime or after your death. Remaining principle goes to your favorite charity.
The income generated by either trust produces an estate tax charitable deduction.
Other considerations for giving
Creating a plan for charitable giving can be a complex, but rewarding, process. If you choose to start a plan for charitable giving, you should also discuss the following with a financial advisor:
- Will you make gifts during your lifetime or at your death?
- If your gift is substantial, should you establish a private foundation, community foundation, or donor-advised fund?
We can help you help others
An Ameriprise financial advisor can help you review your options for charitable giving, incorporate strategies into your financial plan, and coordinate your estate planning with your tax and legal professionals.
Neither Ameriprise Financial nor its representatives or affiliates may provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
Ameriprise financial cannot guarantee future financial results.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.