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Now that Thanksgiving, Black Friday, and Cyber Monday are over, there’s another more recently adopted holiday to look forward to: Giving Tuesday.

Giving Tuesday is a day for people to give back to those in need, whether through donating, volunteering, raising money, etc. If you choose to give back during this season of gratitude, it’s important to reevaluate your financial plan to include your preferred organizations, decide on a system that works for you and choose the best method for giving, while helping your bank account in the process.

Julie Virta, CFP®, senior financial advisor with Vanguard Personal Advisor Services, shares four approaches to building or revamping donations into your financial plan.

Qualified Charitable Distributions from an IRA

The first way to go about donating within your financial plan is through qualified charitable distributions (QDCs) from an IRA. Although you can only utilize this process after full retirement age of 70.5, with this method, you have the opportunity to give directly, up to $100,000 out of that traditional IRA.

“It can be a really good starting point for those retirees that do have larger traditional IRAs,” said Virta. “Especially if you’re already taking required distributions, it can offset [them and] you don’t necessarily need that cash.”

Securities vs. Cash

When giving a donation, there’s more ways to do so besides cash or check – securities. If you’ve saved throughout retirement into an appreciated fund, you’re able to give that security to most organizations instead of cash.

“For example, if you wanted to give a large cash donation to any organization, instead of just writing a check for that, you could give securities in that same amount,” said Virta. “It would be a way for you not to have to sell the security, take a capital gain, and then give the cash from those proceeds.”

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Bunching Donations

Oftentimes people choose multiple charities to donate to throughout the holiday season versus one. This method of bunching donations, or donating to various entities at once, can actually maximize your tax dollars and be more financially beneficial.

“If there’s a commitment you’ve made to a charity or a couple of charities you want to give to, maybe over the course of a 12-month period, sometimes you might want to bunch those together to take advantage of the tax deduction – if you wanted all that tax deduction in one year,” said Virta.

For example, “rather than give to one organization in December and another in January, do them both in this year and then you get a greater amount of tax deduction in the one year versus spreading it out in the two years, [when] you might not have as much opportunity on that tax deduction,” said Virta.

Donor-Advised Fund

If you’re someone who wants to get the immediate tax deduction, yet you don’t know which charities you want to give to, you could use a donor-advised fund.

What is a donor-advised fund? – “a vehicle that you can give to and then essentially, you can let the dollars stay in that vehicle and they can grow with the market. And then you can give it to the various charities you want to give to at a future point, but it gives you the immediate tax deduction upfront,” said Virta.

In other words, moving money into a donor-advised fund gives you the immediate tax deduction with the time to determine later on which organizations you want to benefit from those dollars.

There’s also a way to combine this strategy with the securities method for those who want to give securities and not cash.

“If you were giving to a donor-advised fund and didn’t necessarily know your charities yet, you could give securities into the donor-advised fund as a way to take advantage of giving securities versus cash,” said Virta.

Course (and recourse) of Action

While it’s important to consider charitable giving when developing your first financial plan, it’s equally important to revisit those plans for giving on an annual basis. Factors like the state of the market, your retirement status, organizations of choice, and more can differ, and those should be reevaluated and reflected in your overall financial plan.

“You don’t necessarily need to do the same thing every year. Maybe one year, it’s more advantageous to you to give securities. Whereas this year, maybe you turned 70.5 and want to take some dollars out of your IRA,” said Virta. “It’s really something that should be reevaluated annually as you’re giving and thinking about what’s the best approach for this year in terms of how I’m giving?”

Keep these tips in mind for your charitable giving and consult a CFP® for help with incorporating any strategies into your personal financial plan. Happy giving!

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