How to be strategic when it comes to charitable giving

Americans are generous people. Last year, we donated almost $500 billion to charities.¹ Of course, being generous to our favorite organizations does not prevent us from giving in the most tax-efficient way possible. People too often fail to think strategically about how they are giving. Thankfully, it’s easy to put smart charitable giving strategies in place.

Picking which assets to donate and when  

Knowing how much you want to give and to which charity is only part of the picture. Knowing which of your assets to give—and when to give them—can have a big impact on your taxes for the year in which you donate.

"Charitable giving can be a rewarding way to support organizations that are important to you,” says Colleen Carcone, Director of Wealth Planning Strategies for TIAA’s wealth management division. “Putting a little thought in the how can also help you save some money. That is why having a solid charitable giving strategy plan in place is so important."

So, when it comes to giving, what should you do? Should you simply write a check? Should you donate funds from investment accounts? If you are approaching retirement age, should you consider donating upcoming required minimum distributions (RMDs) from your retirement account(s)?

While writing a check is the easiest way, you will get more bang for your buck if you use appreciated securities. You may want to give your most highly appreciated stock or mutual funds—investments you’ll eventually have to pay hefty capital gains taxes on—rather than tap cash from liquid accounts.

If you do plan on using your retirement accounts for giving, you can minimize the tax liability associated with RMDs by using a common charitable giving strategy. This strategy is known as a qualified charitable distribution (QCD). QCDs allow you to give funds directly from an IRA to your desired charity, minimizing your RMD tax hit. (See box for info on RMDs.²)

QCD—a closer look 

Here are the rules for using QCDs:

• Owner of the retirement account must be age 70½ or older
• Maximum amount allowable is $100,000 annually per individual taxpayer
• Eligible retirement accounts include traditional IRAs, inherited IRAs, SIMPLE IRAs (inactive only) and SEP IRAs (inactive only). Your 403(b) and 401(k) accounts are NOT eligible. 

The power of planning 

A successful giving strategy that includes QCDs requires proactively planning annual gift amounts before you make the contribution. You may even need to plan a year or more in advance. For example, if you are interested in making QCDs next year, but your assets are still in a 403(b) plan, consider rolling them over to a traditional IRA before December 31, 2023. That way, you can set yourself up to maximize the tax efficiency of your future donation in 2024 or beyond. 

Appreciate the complexity and get help 

Even with planning and forethought, donating to charities in a tax-efficient way can still be complicated. Thankfully, TIAA has dedicated charitable giving experts who can collaborate with you and your advisor to make sure you are making the right decisions that will be best for your needs, your loved ones and the charities involved. Talk to your wealth advisor about whether working with a TIAA charitable giving expert is right for you.