Financial planning isn’t only about providing a future for yourself and for your family. It’s also about doing the things you’re passionate about, and taking a wise and prudent approach to charitable contributions.

At Stonepath Wealth Management, we’re eager to show our clients how they can take a strategic approach to their donations—minimizing tax burdens and allowing them to give as much as possible to the causes and organizations they care about. The question is, what are the smartest ways to incorporate charitable giving into your financial planning?

Donor Advised Funds

One way to help meet your charitable giving goals while also taking advantage of tax benefits is through Donor Advised Funds. A Donor Advised Fund, sometimes called a DAF, is a vehicle for philanthropy, established as a public charity. Basically, it lets you make charitable donations, obtain an immediate tax advantage, and then allocate grants from the fund over time. A helpful way to think about it is as a savings account, but for charity—basically, the donor contributes to the fund whenever they like and, when they are ready, they advise those funds to be granted to the charity or non-profit of their choice.

There are a number of benefits that DAFs can offer—among them:

  • They allow you to contribute cash, securities, or other assets that can be invested for tax-free growth, and they give you the freedom to contribute to your charitable savings account over time.
  • In terms of specific tax advantages, contributions can be tax deductible in the year they are made, with certain limitations in place.
  • Finally, your account can be passed on to kids or grandkids, allowing the family legacy of charitable giving to continue.

What About Retirement Assets?

Another approach to charitable giving is to cash out your retirement fund, such as an IRA, and donate that money to charity. To do this during your lifetime, however, you will need to pay any income tax attributable to the distribution; there is very little tax benefit associated with this practice.

A better approach is to incorporate charitable giving into your estate planning, setting it up so that funds from your IRA are donated to the charity of your choice, upon your death. There are significant tax advantages here, which can lead to more funds available both for the charity and for your heirs.

Incorporate Charitable Giving into Your Financial Plans

Those who wish to take a smart, tax-advantaged approach to charitable giving—maximizing the funds available to them—have a few ways to do so. As always, we recommend talking it over with your financial planner, and determining which option makes the most sense for your financial needs.

At Stonepath Wealth Management, we love getting to know our clients, and to learn more about the things they care about—and the ways in which they want to make a difference in the world around them. To talk more about charitable giving as part of your financial plan, call us today to schedule a full consultation.