Greetings!
Certainly we are living in interesting times. The work of nonprofit organizations in our community grows more important with each passing day. As we reflect on global events with gratitude for the strength of our own society, we nevertheless are struck by the significant challenges experienced by the people of our own towns and neighborhoods.
As your partner in philanthropy, the community foundation is here to help you expand your donor relationships, inspire legacies to support your mission, and build your endowment to pave the way for a brighter future.
We hope you'll give us a call with your questions about this month's newsletter topics, and anything else that comes to mind as we work together to grow philanthropy in our region.
All the best,
--Your Community Foundation Team
Is it time to talk with your donors about giving retirement assets to support your mission?
The Covid era is sometimes referred to as the Great Resignation because of the large number of people who have exited the workforce in the last couple of years. Some are referring to this period as the Great Retirement, considering that, as Goldman Sachs estimated, more than half of the people leaving the workforce are over the age of 55.
While certainly the shrinking workforce can present challenges for the economy, there may be a silver lining for charitable giving. More retirement means more money in motion, from 401(k)s rolling over into IRAs, to retirees being motivated to ensure that their financial and estate plans are in good shape, including the ability to fund charitable priorities.
All of this means it’s a great time to review the various ways your donors can gift retirement assets to your organization, even if you are generally familiar with the techniques. Here’s a quick checklist:
–Cashing out. Of course, a donor can always contribute retirement assets (IRAs, 401(k)s and 403(b)s) by simply cashing them out and paying the income tax, and then donating the rest to your charity. Almost certainly, though, in most cases, this is not a good tax strategy whatsoever.
–Gifts upon death. When a donor designates your organization as the beneficiary of retirement plans, the donor can potentially reap huge tax rewards in terms of avoiding estate taxes and income taxes attributable to the retirement assets.
–Lifetime gifts. The Internal Revenue Code contains special provisions for “Qualified Charitable Distributions” that may allow a donor who is over 70 ½ to give up to $100,000 from an IRA directly to your organization and avoid paying income taxes on the distribution.
–Avoid “gotchas.” Remember that some donors may not stay retired. Going back into the workforce presents unique challenges, such as the tax implications of “rehiring” and its impact on Qualified Charitable Distributions.
As always, the team at the community foundation would be happy to work with you and your donors to facilitate these gifts. Frequently, creating a fund at the community foundation to receive, administer, and distribute non-traditional assets is a great way to help your donors unlock the funds they'd like to give to support your mission, sooner rather than later.
Economic and policy trends may influence your donors’ giving plans
Like you, we’re keeping a close eye on policy and legislative developments, as well as the impact of the economy on charitable giving strategies. Here’s what we’re tracking:
–Taxpayers have been using cryptocurrency to fund their charitable goals. This is certainly a strategy worth exploring for some of your donors. Be aware, though, that the IRS’s commitment to increased enforcement, coupled with the purported widespread underreporting of cryptocurrency-related income and corresponding tax revenue losses, means your donors should proceed with caution, especially now that the IRS has launched Operation Hidden Treasure to combat crypto fraud.
–Your organization, along with other charities, is impacted by inflation. Your donors may wish to take that into account in their charitable giving plans for 2022. Even though your donors may themselves feel less flush with cash, the charities they support are feeling it, too, and a decline in donations might seriously crunch the budgets the organizations require to deliver on their missions to help the people who need it most.
–Despite somewhat dire predictions that philanthropy might decline due to pandemic forces, that did not happen, according to a recently-released study. Charitable giving grew by nine percent in 2021, driven in no small part by online giving. Average gift amounts were up, although the number of donors giving to charity is still experiencing downward pressure due to the change in the rules for itemizing deductions.
–Certainly, your donor relations team is accustomed to dealing with donor divorces as marriage and divorce rates ebb and flow. The topics of philanthropy and divorce haven’t typically been addressed together, though, at least not until recently when high-profile divorces such as MacKenzie Scott and Melinda French Gates have highlighted the billions of dollars given by these women to charitable causes. Today’s environment of heightened awareness means it’s a good time to brush up on the legal, financial, and tax impact of a marital split on donors' charitable strategies. The team at the community foundation is happy to help you strategize when you are dealing with a donor couple, especially when both partners have been giving to your organization for a long time.