By Frederick “Rick” Fisher, MS, CFP®
When we think of financial planning, it generally has to do with saving for retirement, managing money in order to pay for our lifestyle, and protecting our lives and assets with insurance. Rarely do you hear it mentioned with giving money and assets away. However, we have found that good savers accumulate more money than they will ever spend, and when the get to retirement age, they wonder what they are going to do with their excess.
To illustrate let’s take the hypothetical case of Jack and Diane, both are retired and in their sixties. They have been very good savers, and as a result have more money than they think they can spend. They have already done some estate planning and plan to give most of their assets to children and grandchildren, but mentioned they would like to do more now as well as after they pass. Over the years, they have tried to give money every year to local charities, usually a few hundred per year when they started out, and later a few thousand per year.
A few years ago, they decided to set a percentage goal of income to spread around to the many local charities that are in their community. They started at 5% of income, and as their incomes increased, they raised their budget to 10%. With the recent stock market rally, their retirement and brokerage assets have appreciated; at the same time, they wanted to travel more, and found that their income would not support both goals. We met with them to discuss ways they could continue giving at their current level and still afford to go on vacations. The main issue was that much of their wealth was in retirement plans or highly appreciated stocks. Should they sell stock to cover either vacations or charitable giving, they would incur a capital gain. If they withdrew from their retirement accounts, they would also incur tax consequences. They expressed that they would like to avoid additional taxes if possible.
After reviewing their accounts, we came up with a strategy that would address their goals. First, we recommended that they use their after-tax income to fund their vacations. Going forward, we recommended setting up a special account to fund future vacations. Then, we recommended that instead of selling stock to raise cash for charitable giving, they identify certain 501(c)(3) charities and gift their stock in kind to them. This way they get a deduction for the market value of the stock at the time of the gift and avoid the capital gains exposure. The charity in turn will sell the stock and convert to cash. Since 501(c)(3) charities are tax exempt, they avoid the capital gains tax upon the sale. Another option would be to raise cash in their IRA, then send a check from the IRA directly to the charity of their choice. This will avoid the tax implications since the deduction will offset the income generated from the withdrawal.
For those who are looking to find ways of giving back to their community and buy using assets that they have accumulated over the years, these are great strategies to consider. Should you want additional information on charitable giving strategies and other ideas as you think beyond investments, call us at 530-273-4425.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. Frederick Fisher is a CERTIFIED FINANCIAL PLANNER® Practitioner, and Insurance Agent with Ostrofe Financial Consultants, Inc., with clients in 31 states.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Frederick Fisher is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial.
For questions or suggestions, contact Frederick at (530) 273-4425, or email@example.com, or visit ostrofefinancial.com. Branch address: 565 Brunswick Road, Ste. 15, Grass Valley.