What you get when you give: Advantages of a charitable gifting strategy

Tina Hurley, Head of Financial Planning and Product, SVP | Citizens Wealth Management

As a strategic partner who helps clients navigate and grow in changing circumstances, Tina is responsible for the direct management of the Citizens Wealth Management Product Team, including the investment platform and a team of CERTIFIED FINANCIAL PLANNERS™* serving all segments of net worth.

The reasons people donate money, goods and assets to causes they care about are deeply personal and provide fulfillment in a multitude of ways. When you intentionally include a charitable gifting strategy in your financial plan,⁸ it can lead to some practical advantages too — including tax savings and greater financial flexibility.

While the main benefit of helping others is what it means to you personally, having a plan for your giving can empower you to dig deeper, both meaningfully and financially. When you have a calculated sense of how charitable giving impacts your finances, you can explore how to optimize what and how you give to stretch your values and influence even further.

Ways to maximize the benefits of charitable giving

Here are some of the top advantages of having a charitable giving plan that coordinates with your overall financial strategy:

1. Reduce your taxable income

The IRS offers tax breaks when you donate money or property to eligible charities. You can take advantage of this if the total of all your itemized deductions is higher than the standard deduction. For 2024, that's $14,600 for a single taxpayer or $29,200 if you're married and filing jointly.¹

Another way you can maximize the tax benefits of donations is by giving to a donor-advised fund.² With this option, you make a deposit to the fund, which is managed by a 501(c)(3) sponsoring organization, and take the deduction for the current year. You may even want to invest your contribution in mutual funds or bond funds so the amount you donate has the potential to grow over time.

With any donations, your charitable giving tax deduction limits³ depend on what and where you donate. For example, when you give cash to public charities or qualifying nonprofits, you can deduct up to 60% of your adjusted gross income (AGI). Noncash gifts to those organizations can be deducted up to 50% of your AGI — or 30% if the noncash gift is an asset that had capital gains. Gifts to private foundations or fraternal organizations are also limited to 30% of your AGI. If you've given beyond these annual limits, you may be able to carry forward the remaining amount and deduct it the next year for up to five years.

2. Use a trust for income and impact

You can provide income for yourself or a loved one while supporting a cause through a charitable remainder trust. With this kind of trust, you transfer assets to the trust and designate a charity you want to donate to. The trust generates income for you or a beneficiary, either for life or for a term of up to 20 years.⁴ At least 10% of the original value of the assets in the trust must remain after that income is paid out. The leftover amount, or "remainder," goes to the charity, and you can take a tax deduction for it.

3. Enjoy flexibility in your retirement

A charitable gifting strategy can help you control the timing of taxes in retirement. If you have a traditional IRA or 401(k), you must begin taking required minimum distributions and paying income taxes on them starting at age 73. But no tax is due on a qualified charitable distribution or a distribution paid directly from an IRA to an eligible charity. This option isn't available for 401(k)s, but you may be able to roll over a 401(k) to an IRA and then make a qualified charitable distribution.

You might plan to use qualified charitable distributions in years when your income is higher and take taxable distributions once you're in a lower tax bracket.

4. Create a smaller taxable estate

Making charitable donations can lower the taxes that may be due on your estate or exempt your estate from taxation entirely.

At the state level, estate tax varies widely, and some like Pennsylvania and New Jersey have inheritance tax (Maryland has both) — so it pays to understand the laws where you reside. For 2024, estates above $13.61 million are subject to estate tax at the federal level,⁵ and taxable gifts you make throughout your life count toward that limit. Giving someone more than $18,000 in 2024 (or $36,000 if you're giving with your spouse) can bring you closer to the threshold where estate tax kicks in.

So if it looks like your beneficiaries will receive a large inheritance or if you've given people significant sums, you might consider donating more to charity to bring your estate below the taxable amount.

5. Lift up your values and sense of well-being

Developing a charitable giving plan is an opportunity to explore your dreams for the world and put them into action — and it may just make you and others feel better.

Philanthropic giving lets you promote what you believe in while also benefiting the public good and quality of life. Maybe you want to support local environmental restoration efforts or help revitalize a beloved arts district. Whatever you're passionate about, you may be able to make a greater difference if you give strategically, matching up certain charities and your particular donation with the impact in mind.

Charitable giving can also provide just simple personal fulfillment. Research from Harvard Business School shows that giving to others fosters positive emotions,⁶ and research from the University of Notre Dame finds that giving contributes to happiness and personal growth.⁷ It's a win-win: Your recipients benefit from the resources you provide, and you'll likely feel enriched by the experience.

Finding the right approach to charitable giving

To get the most out of your charitable giving, you'll need a thoughtful strategy that accounts for your goals and values. A financial advisor⁸ can help you determine when giving makes sense and work with you to increase your impact.

Consider meeting with a Citizens Wealth Management® advisor⁸ to explore how charitable giving fits with your overall financial plan.⁸

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