How to Pick a Charity…During a Pandemic Part 3: Resources

While vetting a charity can be challenging in any environment, vetting a charity without interacting in person can be especially challenging. In this three-part blog series, I hope to share a few tips to help you pick and support amazing charities from the comfort of your home. 

Participate in The Center's Annual Toys for Tots Drive! Donate by December 17th.

Learn how The Center gives back throughout the year. 

Contributed by: Jaclyn Jackson, CAP®

Last time, we learned how to determine whether a nonprofit stuck to its mission with program indicators. However, what if you are pressed for time or lack the CPA relationships to help you through financial analysis? Well, you're in luck because there is help readily available at your fingertips, and I am going to show you where to look online. 

Helpful Vetting Resources

• GuideStar provides information on a charity's income, spending, mission, and executive salaries. They hold records for 1.8 million nonprofits registered with the Internal Revenue Service. Free parts of the website provide access to each organization's Form 990, the primary IRS filing document for nonprofits. Premium services offer more financial analysis.

• BBB Wise Giving Alliance produces reports about national charities, evaluating them against comprehensive Standards for Charity Accountability, and publishes a magazine, the Wise Giving Guide, three times a year.

• Charity Navigator applies analysis to each of its charities to come up with its star ratings (with four stars as the highest rank). The site focuses on financial health, accountability, and transparency.

• Charity Watch rates 600 charities with a grading system from A to F — and takes a watchdog approach towards exposing nonprofit abuses.

Pro Tip: If you decide to use a vetting site of your choice, look for sites that don't charge charities to be reviewed. his helps mitigate biased evaluation from vetting sites.

You made it to the end of the series! Hopefully, you feel empowered to choose an incredible nonprofit to support this year and that you had just as much fun reading the series as I had writing it. If you are interested in adding philanthropy to your financial plan, we have strategies to share with you. Feel free to email your Center planner with questions or contact@centerfinplan.com if you are new to The Center (we welcome you!).

Reminder: If you plan on donating this year, don't forget tax-advantaged opportunities extended to donors through the CARES Act:

• In addition to the standard deduction, non-itemizers can take an above-the-line deduction for $300 of charitable contributions per person. Joint filers can deduct up to $600. Additionally, itemizers can now deduct donations up to 100% of their AGI.

Are you working on your year-end tax planning? Check this out! Have questions? Don't hesitate to reach out: contact@centerfinplan.com.

Make sure to check out part one of this blog series here, and part two of this blog series here!

Jaclyn Jackson, CAP® is a Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

How to Pick a Charity…During a Pandemic Part 2: Commitment to the Mission

While vetting a charity can be challenging in any environment, vetting a charity without interacting in person can be especially challenging. In this three-part blog series, I hope to share a few tips to help you pick and support amazing charities from the comfort of your home. 

Participate in The Center's Annual Toys for Tots Drive! Donate by December 17th.

Learn how The Center gives back throughout the year. 

Contributed by: Jaclyn Jackson, CAP®

In part one of our "How to Pick a Charity...During a Pandemic" blog series, we discussed key documents to help identify a great nonprofit. In part two of our series, I'll show you how to determine whether money donated to nonprofits goes towards their programs & initiatives. 

On A Mission 

We understand a nonprofit is on a mission when they dedicate the majority of their resources toward implementing the programs that support the communities they aim to serve. While we generally assume the best of charities, sometimes a tiny voice in our minds ponders if our contribution actually helps people in need. Do our donations really support service programs? If you've ever heard that small voice, this number (with the help of your Certified Public Accountant, or CPA), can give you insight about a nonprofit's program spending habits:

The Program Expense Percentage, also known as The Program Efficiency Ratio, divides the organization's program expenses by the organization's total expenses. (Your CPA can use the charity's Form 990 to calculate this percentage.) 

While the program expense percentage varies by service provided and operating expenses needed to provide the service, experts recommend the percentage be at least 65%. In other words, 65% or more of the charity's resources (as evaluated by expenses) should be used for programming. If you can find two to three years of 990 forms for a nonprofit, you can determine spending trends. Charities that consistently underspend on their programs and services do not have as strong an impact on their charitable missions. 

Before we chop off any heads, it is also important to understand the nonprofit's program "stage".  For example, if the program is new or is trying to expand, more than ordinary operational expenses (staff hires, technology, etc.) may be required to catapult programming. Having data is great, but pairing data with accurate analysis is better.  Talk to the nonprofit about discrepancies, so your analysis is accurate.

Pro Tip: Pay attention to whether the charity practices "joint cost allocation". Joint cost allocation lumps fundraising with the charity's program expenses. This tactic blurs the line between resources spent on solicitation and service programs. If you bump into this practice, get clear about the type of charity you want to support. It may be appropriate for lobbying or public awareness organizations to use joint cost allocation, but you may not be able to deduct your donation to those types of organizations. On the other hand, joint cost allocation may be a red flag for service-based nonprofits.

Phone a Friend

I want to emphasize, rely on your support team to do the math for you. A CPA can help you crunch numbers as well as compare 990s to annual reports and financial statements. This is especially helpful if any of the documents are vague or missing information. If you need your gifting efforts to consider your tax or estate planning needs, ask your financial planner (that is why we are here!) for help.

Reminder: If you plan on donating this year, don't forget tax-advantaged opportunities extended to donors through the CARES Act:

• In addition to the standard deduction, non-itemizers can take an above-the-line deduction for $300 of charitable contributions per person. Joint filers can deduct up to $600. Additionally, itemizers can now deduct donations up to 100% of their AGI.

Are you working on your year-end tax planning? Check this out! Have questions? Don't hesitate to reach out: contact@centerfinplan.com.

Make sure to check out part one of this blog series here!

Jaclyn Jackson, CAP® is a Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

How to Pick a Charity…During a Pandemic Part 1: Important Documents

While vetting a charity can be challenging in any environment, vetting a charity without interacting in person can be especially challenging. In this three-part blog series, I hope to share a few tips to help you pick and support amazing charities from the comfort of your home. 

Participate in The Center's Annual Toys for Tots Drive! Donate by December 17th.

Learn how The Center gives back throughout the year. 

Contributed by: Jaclyn Jackson, CAP®

Answering the Call 

According to a study done by the Urban Institute, nonprofits need our support more than ever. The study revealed 4 in 10 small charities experienced a dip in donations amid pandemic and economic concerns. Likewise, 29% of large nonprofits faced the same fate. The timing couldn't be worse as the demand for services provided by nonprofits has increased.

Luckily for nonprofits, the gifting season is here, and people across the nation open their hearts and pockets to wonderful nonprofits. Chances are, if you're reading this blog series, you're probably one of those soft-hearted individuals.

Let the Vetting Process Begin: Important Documents

You want to give wisely, and I want to support your efforts. Let's get started! In part one of this series, I'll outline the documents you'll need to assess a nonprofit. These documents are usually available on a nonprofit's website. However, you may have to do a little digging. Utilize navigation menus commonly found at the bottom of website homepages; go to the "about" page to find leads; use site search fields to search for reports by name.

1. Form 1023 - Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code: This tells you the organization is, in fact, a 501(c)(3) nonprofit. Aside from religious institutions (which have a different tax identification code), individuals most commonly support 501 (c)(3)s charities. Sometimes, nonprofits will provide their Employer Identification Number (EIN) instead of this form. You can use the number to confirm 501(c)(3) status on the IRS website.

2. Annual Report: Use this holy grail document to gain a comprehensive view of the nonprofit you're considering. Annual reports generally contain a charity's mission statement and focus, projects initiated (fundraising events, volunteer efforts, community programs), financial information, potential donors, and an account of significant contributions.

3. Form 990 - Return of Organization Exempt From Income Tax Form: Similar to how individuals tell the IRS about their financial activity, Form 990 provides the government and the public with a snapshot of the charity's activities for that year.

Bonus Documents

If you're thinking about giving a larger-than-normal contribution or becoming a long-term donor, inquire about the following policy documents. These items are not always on websites, so you may need to make an email request or call the nonprofit. 

• Code of Ethics or a Statement of Values: Company guidelines to help employees, volunteers, and board members make ethical choices and create accountability for those choices.

• Whistleblower Protection Policies: This shows a charity is open to hearing concerns or complaints about its practices by demonstrating that it values transparency and accountability practices.

• Governance Policies for nonprofit boards, internal controls, and conflict of interest policies help to ensure ethical leadership practices.

We've covered key documents to help you pick a great nonprofit. In part two of our series, I'll show you how to determine whether money donated to nonprofits actually goes towards programs & initiatives. 

Reminder: If you plan on donating this year, don't forget tax-advantaged opportunities extended to donors through the CARES Act:

• In addition to the standard deduction, non-itemizers can take an above-the-line deduction for $300 of charitable contributions per person. Joint filers can deduct up to $600. Additionally, itemizers can now deduct donations up to 100% of their AGI.

Are you working on your year-end tax planning? Check this out! Have questions? Don't hesitate to reach out: contact@centerfinplan.com.

Jaclyn Jackson, CAP® is a Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Center Participates in Annual Walk to End Alzheimer’s

Contributed by: Center for Financial Planning, Inc.®

Center Team members recently participated in the Walk to End Alzheimer’s in Brighton. The walk, sponsored by the Alzheimer’s Association of Michigan, raised funds and awareness for dementia, a disease that has and continues to impact our clients, client’s families, and team member’s families. Alzheimer’s and other dementias impact those diagnosed and their families so significantly from a psychological, emotional, and financial standpoint that we make substantial efforts at The Center to provide extra information, resources, and support to clients who may be impacted. Helping to raise awareness and funds for research is just one of the things we do!

If a client or family member were to receive a dementia diagnosis, we have helpful resources and action steps available here:

How to Reduce the Risks of Dementia and Diminished Capacity to Your Retirement Plan

A Dementia Diagnosis and Your Financial Plan

The Center Supports “Swing Fore the Cure” Golf Outing

Contributed by: Nicholas Boguth, CFA®

The Center was proud to sponsor the "Swing Fore the Cure" golf outing, a fantastic event involving raising money for a worthy cause and having a great time while doing it! The outing was organized by the family of the Center’s own, Nick Boguth, whose mother has been a significant fundraiser for the cause since becoming a breast cancer survivor 15 years ago.

Cancer is something that hits close to home for most of us as we all have colleagues, family, or friends who have been affected by the disease. The Center was happy to corral around this event, bring some of our Center energy to the golf course, and support the fundraising efforts that benefitted Ascension St. John Breast Cancer Center, Wigs 4 Kids, and Susan G. Komen Foundation.

Nicholas Boguth, CFA® is a Portfolio Administrator at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Finding Meaningful Ways to Spend When Your Financial Plan Allows

Contributed by: Sandra Adams, CFP®

Several months ago, I wrote about clients who had developed such great savings habits to retire that they were shocked they could spend more in retirement than they had been spending in pre-retirement (“Can You Change Your Spending Habits in Retirement”). Of course, by the time this happens, most clients realize that it is very difficult, if not impossible, to change their spending habits or their lifestyle in general. Ultimately, they have trouble spending the money they have available to them.

I continue to have discussions in financial planning reviews with these clients when their retirement spending continues to be well below what is possible for their long-term financial success. Often this generates meaningful conversations regarding what might be possible with the excess funds, for the clients to make their lives more enjoyable and valuable, and for their families and communities.

Here are just some of the ideas that have come out of these discussions:

• Annual gifting to children — in cash or specifically for the individual needs for the children and/or their families.

• Assisting with grandchildren’s education.

• Taking a memorable trip(s) that the client has always dreamed of taking.

• Creating or contributing to a scholarship program at the client’s former school/university.

• Making a significant donation to a charity that has special meaning to the client.

• Investing in a hobby that has significant meaning/value to the client.

• Helping a family member that is struggling financially.

While spending more than what is necessary is still not easy for most of these clients, they begin to find that it makes more sense and is easier to do when the spending is meaningful for them, their families, or their community. And with the help of a financial advisor along the way to make sure that the spending is still in line with their plan, even if they do those things that are meaningful (and sometimes fun), they can move forward with confidence and find new ways to be creative with their spending.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

The Final Four 'Stocks': A Center Spin-Off Competition

Contributed by: Jeanette LoPiccolo, CFP®

To celebrate the annual college basketball tournament, The Center Team hosted an internal spin-off competition. We set aside our favorite teams and adopted individual stocks instead. You may be thinking – that sounds kooky! It is a bit. Our celebration is a mash-up of internal team education, some charitable giving, and a bit of friendly competition. 

How It Works

Our investment strategies contain mutual funds and ETFs that are comprised of individual stocks. The stocks are our basketball teams. Nick Boguth, our trusted portfolio administrator, highlighted 30 of these stocks within our carefully chosen strategies. Each stock was then selected by a team member and entered into our March “Market” Madness brackets. While the Center takes a long-term approach to investing, we are tracking these stocks for a short period just for fun. The top four winners will receive a donation to their favorite nonprofit organization.

To kick off our competition, our amazing team members, Lauren Adams, Nick Boguth, and Jaclyn Jackson led a Zoom presentation on the fundamentals of stock investing, valuations techniques, and where those 30 stocks fit within client portfolios. It was a great opportunity for all team members–not just those in investment or planning roles—to “check under the hood” of our most commonly used investments to see the stocks that help determine the fund’s performance. Each team member then selected their best guess to “win”. The Center will donate $1,000 to the final four nonprofits. Go team!

Our Final Four Winners

1. Josh (HD), Alex's Saints Foundation

2. Kelsey (TGT), Ruth Ellis Center

3. Sandy (JNJ), Haven (Oakland County)

4. Matt T. (LB), Methodist Children's Home (Redford, MI)

P.S. Want to know more about The Center’s charitable giving? 

Check out our Center Cares page. Our internal Charitable Committee is made up of 6-8 team members who help coordinate charitable giving activities, volunteer events, and promote donations of our time and talent to local nonprofits. We believe in supporting our local community, building relationships with nonprofits, and promoting financial education to underserved communities.

Jeanette LoPiccolo, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® She is a 2018 Raymond James Outstanding Branch Professional, one of three recognized nationwide.

The RJFS Outstanding Branch Professional Award is designed to recognize support professionals in RJFS branches who contribute to the success of their advisors and teams. Each year, three winners are selected and recognized during this year's National Conference for Professional Development. To be considered for this award, Branch Professionals must have been affiliated with Raymond James for at least one year and could not have won the award in the past.

A Top Issue Financial Planning Clients Are Facing Due To The Pandemic

Contributed by: Sandra Adams, CFP®

We are approaching a year of living in what many are calling the “new normal”.  While the future remains unknown, last year provided us with the opportunity to reflect on what is most important in our lives.

When the health of ourselves and the ones we love is threatened, it sparks the reevaluation of our top priorities. During the Covid-19 pandemic, advisors at The Center found that clients are most concerned about the wellbeing of their families instead of short-term market volatility. Additionally, we have had more conversations about charitable giving and the causes clients want to support, especially now when so many people are in need.

I have had many conversations with clients in 2020 that reminded me of a book by Simon Sinek called “What is Your Why?” The book is about helping people find clarity, meaning, and fulfillment to find their purpose. Helping clients find their purpose is woven into the fabric of The Center. It has never been more evident and meaningful than in the last year. Even pre-Covid, after working together to learn what the client wants/needs, we can begin using their financial resources towards those goals – aka helping them LIVE THEIR PLAN.  While the past year may have shifted some of those goals (or delayed some of them – like travel, etc.), I believe that Covid-19 provided extra time, allowing many to focus on their most important goals – their WHY’s.

If you are interested in a financial planner and want to discover your “Why’s”, please reach out.  We would be happy to help you focus on narrowing those down and put those into action steps so that you can ultimately LIVE YOUR PLAN™.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Consolidated Appropriations Act Of 2021: More Stimulus On The Way

Contributed by: Kali Hassinger, CFP®, CDFA®

After months of deliberation, Congress passed a bill providing a second round of Coronavirus relief, and it was signed by the president on December 27th.  This will provide direct payments to citizens, extend unemployment benefits, and reopen the Paycheck Protection Program to provide loans to small businesses.  This Act, totaling $2.3 trillion dollars, earmarks $900 Billion for stimulus relief with the remaining $1.4 trillion for the 2021 federal fiscal year.   

The direct stimulus rules are largely similar to the CARES Act from March 2020, with a few changes, most notably, of course, the amounts provided.

Direct Payments

Based on income and family makeup, some Americans can expect to receive a refundable tax credit as a direct payment from the government.

• Who is eligible? Eligibility is based on Adjusted Gross Income with benefits phasing out at the following levels:

  • Married Filing Jointly: $150,000

  • Head of Household: $112,500

  • All other Filers (Single): $75,000

If income is above the AGI limits shown above, the credit received will reduced by $5 for each $100 of additional income.

• How much can I expect to receive?

  • Married Filing Jointly: $1,200

  • All other Filers: $600

  • Additional credit of up to $600 for each child under the age of 17

The rebates are dispersed based on your 2019 tax return, but, like the CARES Act, is a 2020 tax credit.  This means that if your income in 2019 phased you out of eligibility, but your 2020 income is lower and puts you below the phase out, you won’t receive the rebate payment until filing your 2020 taxes.  The good news is that those who do receive a rebate payment based 2019 income, and, when filing 2020 taxes, find that their income actually exceeds the AGI thresholds, taxpayers won’t be required to repay the benefit.

• When will I receive my benefit? As soon as possible, though delays similar to the CARES Act payments should be expected. 

• Where will my money be sent?  Payment to be sent to the same account where recipients have Social Security benefits deposited or where their most recent tax refund was deposited. Others will have a payment sent to the last known address on file.

Charitable Giving Tax Benefits

• The charitable deduction limit on cash gifted to charities will remain at 100% of Adjusted Gross Income for 2021.  This was increased from 60% to 100% for 2020 with the CARES Act.  If someone gifts greater than 100% of their AGI, they can carry forward the charitable deduction for up to 5 years.  This does not apply to Donor Advised Fund contributions.

• This Act also extends the above-the-line tax deduction for charitable donations up to $300 that was authorized by the CARES Act, but it increases this deduction to $600 for married couples ($300 per person)

Support For Small Businesses

The Paycheck Protection Program (PPP) will allow businesses affected to COVID-19 to apply for loans. Those who did not receive a loan through the CARES Act once again have the chance, and those who successfully applied for a loan previously, may have the opportunity to obtain another loan. If applying for a second loan, however, the previous loan funds must already have been received and spent.

Some of the Paycheck Protection Program provisions are more stringent and other provide more clarity:

• The business must have experienced a 25% or larger drop in revenue for any quarter in 2020

• The loan is limited to a 2.5 times the average monthly payroll costs or 3.5 times for businesses categorized as “Accommodation and Food Services.”  The total amount received is capped at $2 million.

• Expenses paid of forgiven Paycheck Protection Program funds are deductible

  • The IRS tried to withdrawal the deductibility of items funded with PPP, but this Act states that expenses paid with both forgiven and new PPP loans shall remain deductible.

• Loans are limited to businesses that have no more than 300 employees with the exception, again, for businesses categorized as “Accommodation and Food Services.”

Expanded Unemployment Benefits

Unemployment benefits were set to expire for many Americans, but the Consolidated Appropriations Act extends the benefit for an additional eleven weeks.  Additional relief will also be provided at $300 per week until Mid-march when the extension expires.

Individual Healthcare & Tax Planning

• Individuals are able to deduct medical expenses if they exceed 7.5% of their Adjusted Gross Income.  This hurdle was previously 10% of AGI.

• FSA funds that haven’t been used in 2020 can be rolled into 2021 if the employer permits this extension. 

Higher Education Deduction With Increased Phase-out

The Lifetime Learning credit provides a credit of 20% of the first $10,000 spent on higher education expenses (so $2,000 if you spend $10,000). The income phase-out limit has been increased to match the American Opportunity tax credit at $80,000 to $90,000 for single filers and $160,000 to $180,000 for joint filers. Although the American Opportunity tax credit is more lucrative for the amount spent (100% credit up to $2,000 in education expenses with an additional 25% credit on the next $2,000 of expenses.  So a total credit of $2,500 on $4,000 spent), you can only claim this credit for 4 years.  As the name Lifetime Learning credit implies, you can claim this credit throughout your lifetime!

Earned Income Tax Credit Changes

The Earned income Tax Credit and additional Child tax credit are determined by an individual’s earned employment income.  Because so many Americans have faced periods of unemployment in 2020, this Act will allow individuals to use their 2019 earned income to calculate the amount they will receive for 2020.

Student Loan Repayments

The ability for an employer to pay up to $5,250 of an employee’s qualified student loan debt is extended through 2025. The employee receives this benefit tax free.  

The period of time between the passing of the CARES Act and the passing of a 2nd round of relief throughout the Consolidated Appropriations Act of 2021 was much longer than many anticipated.  Thankfully the majority of the legislation did not provide short term deadlines for the end of 2020!

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. You should discuss any tax or legal matters with the appropriate professional.

Gifting Considerations During The Holiday Season

Contributed by: Nick Defenthaler, CFP®, RICP®

Giving is top of mind for many now that we are officially in the thick of the holiday season. Whether you’re shopping online or fighting crowds at the mall, there are other forms of gifting to consider – ones that would arguably have a much larger impact on your loved one's life.

Gift Tax Exclusion Refresher

The annual gift tax exclusion for 2020 is $15,000. This means you can give anyone a gift for up to $15,000 and avoid the hassle of filing a gift tax return. The gift, if made to a person and not a charitable organization, is not tax-deductible to the donor nor is it considered taxable income to the recipient of the gift. If you are single and wish to gift funds to your daughter and son-in-law, you can give up to $30,000, assuming the check issued is made out to both of them. Remember, the $15,000 limit is per person, not per household. For higher net worth clients looking to reduce their estate during their lifetime given estate tax rules, annual gifting to charity, friends, and family members can be a fantastic strategy. So what are some ways can this $15,000/person gift function? Does it have to be a gift of cash to a loved one’s checking or savings account? Absolutely not! Let’s look at the many options you have and should consider: 

1. Roth IRA funding 

If a loved one has enough earned income for the year, he or she could be eligible to fund a Roth IRA. What better gift to give someone than the gift of tax-free growth?! We help dozens of clients each year with gifting funds from their investment accounts to a child or grandchild’s Roth IRA up to the maximum contribution level of $6,000 ($7,000 if over the age of 50). Learn more about the power of a Roth IRA and why it could be such a beneficial retirement tool for younger folks. 

2. 529 Plan funding 

529 plans, also known as “education IRAs” are typically used to fund higher education costs. These accounts grow tax-deferred and if funds are used for qualified expenses, distributions are completely tax-free. Many states (including Michigan) offer a state tax deduction for funds contributed to the plan, however, there is no federal tax deduction on 529 contributions. Learn more about education planning and 529 accounts.

3. Gifting securities (individual stock, mutual funds, exchange-traded funds, etc.)

Gifting shares of a stock to a loved one is another popular gifting strategy. In some cases, a client may gift a position to a child who is in a lower tax bracket than them. If the child turns around and sells the stock, he or she could avoid paying capital gains tax altogether. As always, be sure to discuss creative strategies like this with your tax professional to ensure this is a good move for both you and the recipient of the gift.  

4. Direct payment for tuition or health care expenses

Direct payments for certain medical and educational expenses are exempt from the $15,000 gift tax exclusion amount. For example, if a grandmother wishes to pay for her granddaughter’s college tuition bill of $10,000 but also wants to gift her $15,000 as a graduation gift to be used for the down payment of a home, she can pay the $10,000 tuition bill directly to the school and still preserve the $15,000 gift exclusion amount. This same rule applies to many medical costs. 

For those who are charitably inclined, gifting highly appreciated stock or securities directly to a 501(c)(3) or Donor Advised Fund is a great strategy to fulfill philanthropy goals in a very tax-efficient manner. For those over 70 ½, gifting funds through a Qualified Charitable Distribution (QCD) could also be a great fit. Gifting funds directly from one’s IRA can reduce taxable income flowing through to your return which will not only reduce your current year’s tax bill but could also lower help lower your Medicare Part B & D premiums, which are determined by your income each year.  

As you can see, there are numerous ways to gift funds to individuals and charitable organizations. There is no “one size fits all” strategy when it comes to giving – the proposed solution will have everything to do with your goals and the need of the person or organization receiving the gift. On behalf of the entire Center family, we wish you a very happy holiday season, please reach out to us if we can be of help in crafting your gifting plan for 2020!

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of earnings are permitted. Earnings withdrawn prior to 59 1/2 would be subject to income taxes and penalties. Contribution amounts are always distributed tax free and penalty free. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover educational costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.