Happy New Year! As tax season approaches and you plan your contributions for 2021, be sure to review the key components in the fiscal stimulus that impact charitable giving.

1. People who make smaller gifts will be able to deduct them up to $300

Presently, only those who itemize their income tax deductions are able to use a charitable deduction. For 2020 and 2021, an individual will be able to deduct up to $300 cash donations, irrespective of whether or not they itemize their deductions. It is now $600 per couple for 2021.

2. People who make larger gifts will be able to deduct a much higher amount

Under current law, an individual may deduct up to 60% of their adjusted gross income (AGI) for charitable deductions of cash. The stimulus package lifts that restriction, so that an individual can make a gift only of cash (so once again not stock) and deduct it up to 100% of their AGI for the year 2020 and 2021. This is an election, so the donor who wants to use this provision must tell the IRS.

3. Required Minimum Distributions (RMDs) for IRA’s are back

The CARES Act gave savers the ability to skip RMDs in 2020. In 2021, RMDs are in back force. Unless you have a Roth IRA, you’re obligated to remove a portion of your account balance each year once you turn 72. You may find that this year’s RMD is higher than expected. RMDs are based on your life expectancy as well as the amount of money you have in your retirement plan. If you didn’t take an RMD in 2020, you may have a higher balance going into 2021, leaving you on track for a larger withdrawal and more taxes. You can make a gift to a charitable organization up to $100,000 annually tax free while qualifying for an RMD.

4. IRA beneficiary v. gift in a will

Many people like to include a charitable gift in their will to support a cause that has been important in their lives. One tax smart strategy is to leave part of an IRA, 401(k), or 403(b) account to a nonprofit. It’s easy to change account beneficiaries by contacting the financial institution. Why is this smart? Because heirs pay income taxes on this money. Starting this year, heirs (except spouses) must take out all funds (and pay taxes) within 10 years of inheriting, but any part left to a nonprofit avoids these taxes. Therefore, if you plan to include a nonprofit in your will, use these accounts first.

We recommend that you consult your accountant and/or financial advisor before taking any action on the methods listed here. Your individual financial situation will determine the best course of action for you.

Lyn and Bob Turknett of Turknett Leadership Group use an IRA to support the work of United Way of Greater Atlanta.
What inspires you to live United?

We have been committed to United Way – as volunteers and donors – for decades, because we have seen the power of tackling community problems TOGETHER. UWGA is a powerful force for real change in our community and has the ability to bring all the community together – nonprofits, businesses, local communities, government agencies – all of us – to effectively address our most difficult problems. As a longtime volunteer at the local level I have seen the power of United Way up close and personal.

What prompted you to utilize your IRA for your Cole and Tocqueville Society contribution?

We are old enough to be required to take distributions from our IRA, and, of course, those distributions are taxable as ordinary income. When a gift is given directly from the IRA to a qualifying charity, the income is NOT taxable, but still counts toward your minimum distribution.

How did you learn you could use your IRA for charitable purposes?

From my sister! She and her husband had seen something about this in a newsletter from their financial advisor, and Bob and I began looking into it.

What advantages do you think this method of giving has over others?

Likely only right for some, but it fits for us because it minimizes tax liability.

Would you recommend others to also utilize this method?

YES – IF IT FITS THEIR SITUATION.

Who do you think would benefit from using this method?

Probably most people like us who are still working but who are old enough to be required to take minimum distributions from an IRA.

For more details on using your IRA to help our community, click here. Talk with your financial advisor or tax professional to determine your best strategies. For a confidential conversation about ways to save on taxes while supporting our community, contact your United Way of Greater Atlanta representative.