Do you love the idea of giving more to charity and less to taxes? If you are approaching age 70 1/2 -or- could afford to donate more than one years' worth of charitable giving in one year, then read on...
Option for age 70 1/2 +: Charitable RMDs
A Charitable RMD allows you to donate money directly from your IRA to a charity, which can be a tax-smart way to give, especially if your deductions are either under, or barely over the standard deduction.
- Who can do it? If you're 70½ or older, you can donate up to $100,000 per year from your IRA. Note that the age is not a typo- there's a year and a half of eligibility before you actually have to take your RMD's.
- What’s the benefit? The donated amount counts toward your RMD (the minimum amount you must withdraw annually after age 73), but it isn’t included in your taxable income.
- How does it help? You reduce your taxable income while supporting a cause you care about.
It’s a win-win for you and the charity! Just make sure the money goes directly from your IRA to the charity (not to you first).
Option of Bunching your Contributions:
Charitable bunching (aka donation bunching) is where you donate multiple years of charitable donations in a single year in order to maximize the tax benefit. Here’s an example…
Example without bunching: Let’s say you give $2,000/month in a typical year, and pay $6,000 in annual property taxes. For 2025, that adds up to $30,000, which is the standard deduction for 2025. So, no tax benefit for any donations or property taxes. ☹
Example with bunching strategy: Let’s say you have a lump sum of money, and can afford to do 2025 AND 2026 donations (or even more) in one year. By donating two years' worth at once, you’re able to deduct anything over the standard deduction from your taxable income! You may be able to do this for property taxes as well.
A common objection to this strategy is that it has a negative impact on charities who rely on consistent income streams, which brings us to donor-advised funds…
Option to set up a Donor-advised fund
Donor-advised funds are a type of charitable account where you donate money and get an immediate tax deduction, then disburse funds to charities over time. It lets you give strategically while funds grow tax-free.
You can set these up yourself through a DIY platform, through a local agency (like the Whatcom Community Foundation), or with a financial advisor. 🙋🏼♀️
***keep in mind that your donation to a donor advised fund is limited to a fraction of your adjusted gross income AGI). Any excess can usually be carried forward for up to five years. Talk with an accountant***
If you'd like to work with someone who understands these strategies and can help you coordinate all the moving financial pieces in your financial life, including your charitable giving goals, please feel free to reach out for a free consult.