Chase Mouchet, a financial planner and investment analyst, often speaks with clients who have given generously to charities and other nonprofits during their working years and want to continue helping those in need once they leave the workforce. Planning now during their working years, he says, is one way to ensure they can fulfill that dream.
By Chase Mouchet, Kiplinger
Here’s a good example. One of my clients, now in his mid-50s, plans to fund his retirement through the money he’s made in his business and investments. He and his wife donate a large portion of his earnings to local charities and want to continue supporting these organizations in retirement. By setting aside money into his profit sharing/401(k) plan, they are able to save thousands of dollars in taxes now during his peak income years.
Eventually, this money will grow to become their main charitable funding source in retirement.
Fortunately, some of the same tax breaks that exist for common retirement accounts, such as 401(k) plans, can also be used to benefit charitable causes during retirement. With business owners, professionals and executives, I’ve found that socking away money for these charitable causes may provide additional motivation to start saving or contributing more to these important accounts as we enter the new year.
For people in their 50s and 60s looking to retire within the next 10 years, here are some ways to maximize tax savings today and their charitable impact in the future.
Pre-tax savings for charity could be a win-win for savers and charities
Setting up a 401(k) plan or an individual retirement account (IRA) can be a great place to start building funds for future giving. One of the best reasons to use these accounts is the favorable tax laws when making charitable donations during retirement.
Current law allows individuals over age 70½ to direct up to $100,000 each year from their IRA to qualified charitable organizations. These charitable rollovers, also known as qualified charitable distributions (QCDs), can be part of their RMDs, the required minimum amount that must be withdrawn each year.