Tips for advising clients about giving retirement assets to charity

The COVID-19 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 were over the age of 55.

While 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 clients can gift retirement assets to charitable organizations, including to a fund at the community foundation. Here’s a quick checklist:  

• Cashing out. Of course, a client 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 charity. Almost certainly, though, in most cases, this is not a good tax strategy whatsoever. 

• Gifts upon death. When your client designates a charitable organization, such as any fund at the Community Foundation, as the beneficiary of the client’s retirement plans, the client 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 your client who is over 70 ½ to give up to $100,000 from an IRA directly to a charity (with some exclusions) and avoid paying income taxes on the distribution. QCDs are not allowed to donor-advised funds but they can be made to any other type of fund at a community foundation. In particular, this means QCDs can be made to the TogetherATL Fund, a new initiative of the Community Foundation for Greater Atlanta to tackle gaps in equity in our community.

• Avoid “gotchas.” Remember that some clients 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. (QCDs cannot be made from an ongoing SEP IRA or SIMPLE IRA, where “ongoing” means that it receives a contribution for the year in which the QCD is being considered.)

PRACTICE TIP:  The IRS has released new life expectancy tables for calculating required minimum distributions (RMDs) for 2022. The new tables are from 2020 and assume longer life expectancies (this work was done before COVID-19, which reduced the average life expectancy). This change went into effect on Jan. 1, 2022, and means your clients’ RMD’s will be smaller than would have been the case in 2021.

As always, the Community Foundation is here to help you serve your clients by setting up a donor-advised fund, providing guidance regarding their charitable giving plan, discussing strategies to maximize their charitable impact, involving multiple generations in their philanthropy and much, much more. For more information, please contact Alison O’Carroll, director and philanthropic counsel, at 404.333.0421 or aocarroll@cfgreateratlanta.org.