Financial Planning

Money is essential to living in the US, so everyone needs to know the basics about finance. Not many schools teach the subject. You might have to be the one to teach your children money fundamentals, no matter their age. If they’re old enough to earn an allowance, they’re old enough to learn how to deal with it.

We’ve arranged the concepts below from simple to more complicated. Kids today are often well-versed in TikTok and Snapchat but not money. As the parent, you’ll know where they are in terms of financial sophistication. How you talk to your kids can also differ depending on how old they are. The idea of a spending plan for a six-year-old shouldn’t be discussed at the same level as with your teenager.

Your children should have a good understanding of most of these before they get to college (with the possible exception of retirement savings). Don’t worry if you missed that deadline, because it’s never too late!

If you can, start early so your kids don’t get tempted by the credit offers that wash over college campuses. Or they don’t end up taking out $300,000 worth of loans to obtain a credential that would only generate around $40,000 per year in salary (true story).

Spend Less Than You Earn

Even young children can learn this at a very basic level. Suppose they’ve earned $5 in allowance money. Talk to them about setting some aside for later, maybe buying a gift for a sibling, and taking the rest to spend.

This can be scaled up as necessary for older children. They might want to spend money to hang out with their friends.

Plant the seed of spending less than you earn as early on as you possibly can, and water it regularly! Make sure the concept of saving is built in. Right away your kids understand that a portion of all earnings should be stashed away for later.

Wants vs. Needs

This is huge for helping children learn to live a financially comfortable life. Yes, your child needs a set of pencils for school. But they don’t need the super-expensive set.

Yes, they need clothes to wear. But they don’t need designer outfits.

Yes, your young child wants a lollipop, but they don’t need it.

Help them make a list of what they need and what they want. You might be surprised at what goes in each category! Talk to them in an age-appropriate manner about making sure that their needs are covered before they spend on their wants.

For example, you might expect your older children to purchase some school supplies or cover their own cellphone bill (or whatever), using their allowance or part-time job money. Be clear that they pay for these requirements first. Before they spend their money on other items like entertainment.

Money as a Tool Not an End Goal

You don’t want to raise a Scrooge McDuck who enjoys their money by diving into a pile of gold coins! Help them understand that the point of life is not to amass as much money as possible, but to lead a fulfilling life using money as a tool.

With younger children, keep it simple. Do they like it when other kids don’t let them use their toys, but keep the toys all to themselves? Those kids are greedy, and no one wants to play with them.

Children who see money as a tool and not an end in and of itself are less likely to be greedy and more likely to use it responsibly.

Charity

As a follow-up to avoiding greed, kids can be taught the value of helping others. Sometimes that’s a financial donation, but it often isn’t. A great lesson for this is to “adopt” a family at the holidays. Choose a family whose children are similar in age to your own, and have them help pick out the items needed.

In addition to money, children can learn to donate their time. Make it fun! If they love the water, join in on a beach cleanup during the summer. There are plenty of organizations out there so you’ll find one that works for your family.

Whether your family plans to donate money or time, talk to the kids about how they can determine if the charity is legitimate. How do you know that the money goes where you want it to go? When choosing the volunteer activity, they can also do (age-appropriate) due diligence.

Set Financial Goals

It’s highly likely that your kids, no matter what age, want something! They may not have the money for it. Teach them how to solve this puzzle.

For young children, pick a goal that won’t take too long for them to achieve. For older children, if it’s a more expensive item, you might contribute some amount and then have your child save up for the rest.

Sometimes, kids find through this type of exercise that the original goal isn’t quite worth saving all that money. That’s OK, and it’s a valuable lesson as well.

Debt and Compounding Interest

You might save this lesson for your older children. However, they definitely need to know it before they go off to college. They must understand that when they don’t pay off all the debt on a credit card, it grows higher than the amount they originally took out.

You can probably find illustrations of this online. Most credit card companies now show on the statement how long it takes to pay off a certain amount of debt when only the minimum payment is made.

Credit scores are also important for kids to understand. How too much debt makes it harder for them to buy cars and houses, and even rent apartments or get a job. Having a good credit score means using debt responsibly (e.g., paying off the credit card in full at the end of the month) and not having too much of it.

Debt vs. Credit Cards

Kids today aren’t necessarily familiar with checking accounts, so the difference between debit and credit may not be immediately obvious to them. Explain how the debit card draws from their account. And has no impact on their debt or credit score.

By contrast, paying on a credit card leaves the money in their account alone. But if they don’t pay the credit card off at the end of the month, they’ll owe more than the purchase price.

They also need to understand that this type of purchase could affect their credit score as well, if they’re not responsible about paying off the balance every month.

Taxes

Here’s another subject that’s probably better for older children. Not only income taxes on the money that they earn, but also sales tax on what they buy. They’ll need to learn that the price of the item on the rack isn’t what they’re going to pay at the cash register.

A big misconception kids (and adults!) have about income taxes is that the tax bracket rate applies to all their income. Introduce the concept of marginal taxes, where the bracket rate applies only to the amount above a certain floor according to the tax code. Let them know what income taxes are used for: roads, fire departments, public health, and the like.

If your child is earning money, whether it’s from YouTube videos or a part-time job, they should learn how to do their own taxes. My dad made me learn how to do mine back when there was no software. It’s a great life-skill for your kids to have, and they understand why the money they see in their account isn’t the $15/hour that was promised!

Retirement Savings

One key concept to get across is the importance of saving for it ahead of time. Hopefully you already planted that seed with the idea of spending less than you earn, and the discussion of how compound interest works. This time, it’s working for them, not against them.

Another is why tax-deferred accounts are so attractive. Most kids should probably be opening Roth accounts if they’re eligible to make retirement contributions, but at this stage you probably don’t need to get into the nuts and bolts of traditional v. Roth.

They’ll need to learn about stocks and mutual funds. That a share of stock means they’re owning a share of the company they’re buying. Stocks are best for long-term investments, which is also important for them to know.

They’ll need to learn about stocks and mutual funds. That a share of stock means they’re owning a share of the company they’re buying. Stocks are best for long-term investments, which is also important for them to know.

Would you like to invite your adult children to your next planning session so they understand your plans and goals? Give us a call at 619.255.9554 or email us.

With National College Savings Day (which is 5/29, coincidence, we think not) right around the corner, we wanted to talk about one of the most popular education savings vehicles available to you: a 529 plan. 

A 529 plan has been used by parents and students alike to help save for the massive cost of education today. Depending on if a college is private, public, in-state, or out-of-state, students could pay upwards of $50,000 per year for an education! With that number in mind, finding another savings option may not sound like such a bad idea.

Let’s get down to it— what is a 529 plan and how does it work? How can you best use them in your financial plan? The answers may surprise you.

What exactly is a 529 plan?

A 529 plan is a tax-advantaged savings vehicle designed to help save for the cost of education. Though initially limited for a college education only, 529 plans have since expanded to include K-12 education through to graduate programs.

There are two types of 529 plans: education savings plans and prepaid tuition plans.

The most popular 529 plan is an education savings plan. An education savings plan allows you to contribute after-tax dollars into an investment account to save for the beneficiary’s future. The monetary gains grow tax-free and the distributions remain tax-free as long as they go toward qualified educational expenses such as tuition, fees, room and board, and books. 

These savings can also be used toward elementary and secondary schools. However, you may have to consider riskier investment opportunities if you wish to use the funds in that way. This is because you will have less time to save for elementary education versus college education.

While not the most popular, prepaid tuition plans can be an excellent option for some people. Prepaid tuition plans are only offered by certain states and can allow the account holder to pay for all or a portion of tuition and fees in advance in order to lock in a current rate. 

There are also more restrictions with prepaid tuition plans including:

• A limited number of universities accept them.
• Prepaid tuition plans cannot go towards room, board, and/or books.
• These plans are not guaranteed by the federal government.
• You cannot use these plans for elementary or secondary schools.

A major benefit of 529 plans is that anyone can open an account— no matter your income. While they are most commonly set up by parents or grandparents to help fund the education expenses of someone in their family, that is certainly not the only available route to take.

529 plans are executed on a state by state basis, so it is important to know the different rules for your specific area. This can be tricky for family members who live in a different state, but you are not limited to using a plan from your home state. For example, you can live in California and contribute to a 529 plan in Ohio.

Now that you know the basics of both education savings plans and prepaid tuition, it’s time to learn about the tax advantages that await you.

Tax advantages of 529 plans

In general, 529 plans were created to be tax-efficient. As long as the withdrawals are made for a qualifying educational expense (room, board, books, ect.), it will not be taxed. If you have to withdraw the money for any other reason, you will have to pay ordinary income tax and be subject to a 10% penalty. 

As we said above, even though each state operates its own 529 plan, you aren’t restricted to opening a 529 plan in your home state. However, by opening an account in a different state you may possibly forego some credits or deductions. For example, California’s plan Scholar Share doesn’t offer state exemptions or credits. 

There aren’t typically any annual contribution limits on 529 plans like there are with a 401(k) or IRA, but that goes on a state by state basis. However, there is usually a lifetime limit, which for California is $475,000. 

The bottom line is that the longer your money is invested, the more time you have for the funds to grow and the tax benefits to be greater.

How to best use a 529 plan

Of course, the primary purpose of a 529 plan is to save for future educational expenses. While this is the most effective way to use your money, it can be used in other ways.

The SECURE Act allows for $10,000 from 529 plans to be used to pay toward student loan repayment of the beneficiary and the beneficiary’s siblings. This is a lifetime limit with no tax consequences. 

There’s also a chance that your child may not attend school after you’ve invested in a 529 plan. In this case, you can transfer the plan to another beneficiary if you have multiple children, transfer the fund to another family member, or use the funds for your own education. 

This may not come as a surprise, but the earlier you get started with your savings, the better the outcome will be. We’ve said this in all areas of the financial process, but with the cost of education rising every year, it’s vital to put money away as early as possible.

Choose smart investing with Platt Wealth

Saving for education expenses can be one of the largest savings ventures a family can face. With the cost of education continuing to rise, the emphasis on saving, and saving early, can put you and your family in a good position to remain financially stable throughout the whole process. 

Every state has its own 529 plan and whether you choose an educational saving or prepaid tuition plan, it’s important to think about what is most important to you in a plan and how you can set your family up for a bright future. 

Our advisors at Platt Wealth Management are here to help you use your money in a way that not only enhances your life but the lives of others around you. Take control of your future education and give us a call at (619) 255-9554 or email us here for a review of your finances, on the house.

Believe it or not, spring is in the air. With most people spending more time at home due to shelter in place orders, this is the perfect time for spring cleaning. 

More often than not, spring cleaning is often talked about in terms of your house or personal habits — but your finances can also undergo a dedicated, deep spring clean.

How can you best organize your finances this season? The first step is to get a certified financial planner involved. Keep the vacuum in the closet for a bit longer and concentrate on cleaning up your finances in the following five ways.

A certified financial planner can help organize your finances by consolidating your accounts

The first step to simplifying your financial plan is by consolidating your accounts. Consolidating your accounts into one place is a great way to add organization and ease not only to your financial plan but also to the whole financial process.

In all likelihood, you have income streaming in from many different sources which can add complexity to your financial plan— this where a certified financial planner can help. Consolidating your accounts can help you:

• Understand the full scope of your investments
• Create a better tax plan
• Reduce costly fees and charges

Understanding the full scope of your investments will help you track and visualize all of your investments in one place. It will ensure you aren’t over or under-exposed in certain areas in your portfolio. You will also be able to select investments that meet both your long-term and short-term goals.

Understanding your investments will also make rebalancing and asset allocation simpler because all of your investments live in one place. An example could include the transfer of funds from an old 401k into an IRA.

By consolidating your accounts, you will also be able to create a better, stronger tax plan with your certified financial advisor. With your investments housed in one place, your certified financial planner will be better able to help you implement tax-efficient strategies to your investments.

Last, but certainly not least, you can reduce the risk of added costs and fees by consolidating your accounts. Expensive fees can drag anybody down— especially when they are unnecessary and completely avoidable. When your investments are housed under multiple providers, it can hinder your returns and increase your fees. Consolidating your accounts can create a more effective planning experience that can ultimately save you time and leave you more educated about your financial holdings.

Sweep away old spending habits

It is always hard to admit when something needs to change, but now is as good of a time as any to take another look at how you are spending money. In some ways Coronavirus has helped us to prioritize and cut away excess spending. 

Write down what negative spending habits you’ve formed over the years and reevaluate which spending habits to keep and which to throw out.

It’s important to be intentional with your spending. When you spend your money in a way that is reflective of your goals and values, you will be more likely to spend it on the people, places, and things that really matter to you and will help further your goals.

Organize your finances by deep cleaning your budget

First, if you don’t have a budget detailing your monthly expenses, now is the time to create one. It doesn’t have to be fancy, all it needs to include is what you spend monthly and how much each expense costs. This can easily be done in Excel or Google Sheets.  

Budgets are living documents that should change and evolve as your needs do. Take some time to sit down and evaluate your current budget. While doing so, ask yourself the following questions:

• Is your budget working for you and your financial health?
• What areas need to be changed for you to be able to reach your goals?
• How can you better track your spending and be aware of your budget in practice?

A strong budget leads to more organized finances. After you’ve created a strong budget, re-visit it every month and adjust as needed. A budget is just an estimate, so don’t be afraid to increase or decrease certain areas of spending (just don’t increase any area too much!).

We’ve created a budget spreadsheet to help you evaluate your cash flow.

Triple check your beneficiaries

Life can change in an instant and when those changes happen, it’s vital to have the correct beneficiaries on your accounts. Updating your beneficiaries on your bank, investments, and insurance accounts are important especially as you move into new phases of your life.

While you’re updating your beneficiaries, be sure to select both primary and contingent beneficiaries. Your certified financial planner can help ensure that you haven’t missed anything.

Talk with a certified financial planner

At Platt Wealth Management, we handle your finances as if they were our own so you, your family, and your assets are protected from any unforeseen financial circumstances.

Our certified financial advisors are here to answer any questions you may have about consolidating your accounts, creating budgets, and/or updating the beneficiaries on your accounts. 

At Platt Wealth Management, we put our client’s needs first and provide completely transparent services so you are in better control of your financial health. Take some time this year to spring clean your finances and bring back organization and structure to your financial life. Are you ready to take control of your financial health? Give us a call at (619) 255-9554 to set up a complimentary review or email us here. Let us help you succeed!

Many investors who are able to save a lot of money max out their 401(k) contributions and want to know where the rest of their savings should be invested. Unfortunately, there comes a time when you will have maxed out all your tax-deferred savings! At that point the remainder should go to your nontaxable brokerage account for investing.

That’s not a bad thing. Having a mix of taxable and tax-deferred assets means that you don’t have to withdraw money out of your retirement accounts for emergencies if you’re under 59 ½. So you won’t have to pay the early withdrawal penalty. You may also have some more near-term goals that you can invest in, since you’ve put away all the retirement funds.

But maxing out your 401(k) or TSP doesn’t necessarily mean that you’re finished with retirement accounts, however. There are a few more things you can consider.

After-tax deferral to employer retirement plans

The deductible limit for employer plan contributions in 2020 is $19,500, with the additional catch-up provision of $6,500 for those over 50. Does that mean if you’re over 50 your contribution limit is $26,000?

Not necessarily. That is the deductible limit that you can contribute. Your employer may also provide a match. The limit for all contributions is actually $57,000. Some employer plans will allow you to contribute after-tax dollars until you reach the $57,000 maximum.

Suppose you contribute the full $26,000 and your employer matches a total of $4,000. Contributions are $30,000. If your plan allows, and plans vary when it comes to this, you may be able to contribute an additional $27,000.

Bear in mind that this additional contribution is not tax deductible. However, it is tax-deferred. You won’t receive a current year tax deduction on it, but you won’t pay taxes on it as it’s growing. As you can see, it’s a good choice for investments that generate plenty of current income.

Not sure if your plan allows for it? Check with the TPA (third-party administrator) to see if it’s a fit for you.

IRA retirement contributions

Traditional and Roth IRAs are not considered employer plans. Once you’ve maxed out your employer retirement, you can still make IRA contributions. SEP and SIMPLE IRAs are considered employer plans, so you can’t make additional contributions to them above the $53,000 limit.

As you might recall, additions to a Traditional IRA are 100% deductible for workers not covered by an employer plan. Households filing jointly but covered by an employer plan can deduct their contributions as long as their modified AGI stays under $104,000. Over that, the deductibility phases out until you’re unable to deduct contributions if you make $124,000 or more.

Income limits for Roth IRAs are slightly higher but don’t depend on whether you’re covered by an employer plan. The ability to make contributions starts phasing out at joint AGI of $196,000, and if you make $206,000 or more, you can’t add to your Roth.

However, no matter what your income is, you can always make contributions to a Traditional IRA. The caveat is that they’re not deductible when your income is over $124,000. But you can still contribute and have those contributions grow tax-deferred. Just as with the after-tax deferrals outlined above for employer plans.

You will need to keep good records for your IRA if you contribute both deductible and nondeductible money over time. Many custodians won’t keep the record for you. When it comes time to start withdrawing, you’ll need to be able to show the funds with a non-zero basis. Deductible contributions have zero basis and so they’re fully taxable.

When it comes to withdrawal time, you can’t tell the management company to only withdraw the nondeductible funds. That could lower your taxes, and that would be too easy! Withdrawals will contain a proportional amount of basis and non-basis money. For example, if you have several IRAs and one-third of the funds were nondeductible, then one-third of the withdrawal will come from funds with basis.

529 accounts

These types of accounts are a great way to stash tax-deferred money away. If the funds are used for qualified expenses at a qualified institution, then the withdrawals are tax-free as well. Otherwise you pay a penalty on the gain. Depending on your tax bracket and the size of the gain, it might very well outweigh investing in a taxable account.

Originally the 529 accounts were for college and higher education, but they’re now available for secondary school as well. Contributions are limited by gift tax exclusion rules. In 2020 you can gift $15,000 per person per year. If you have five kids (or grandkids), you could set aside $75,000 tax deferred with no gift tax limitations.

In contrast with UGMA and UTMA accounts, the owner of the 529 account is the adult, not the minor. If you’re concerned that one child may not go to school or may end up with enough scholarships to cover costs, you can simply change the beneficiary of the account when you get to that point.

And the beneficiary can be yourself as well. There are plenty of qualifying golf and cooking schools, for example.

Whether you’re a parent or a grandparent does make a difference. If you’re a grandparent setting up 529s for the grandkids be careful. As you may know, all students applying to American colleges and universities are required to fill out the financial aid form known as FAFSA.

The student’s assets weigh more heavily in the equation, and therefore reduce the amount of student aid that they qualify for. UGMAs and UTMAs are student assets. 529 accounts are not. If parents own the 529, then the account is considered as a parental asset. These have a lighter weighting in the equation.

The grandparent’s 529 isn’t listed on the FAFSA. However, withdrawals from a non-parental account are considered income to the student. Up to half the student’s income is available for college expenses, so it reduces the amount of financial aid required.  

However, the FAFSA uses income tax returns from two years prior. As long as the grandparent doesn’t distribute until junior year, the FAFSA won’t recognize the income.

How about retirement contributions to taxable accounts?

After you’ve gone through the above list, you’ve pretty much maxed out the available tax-deferred accounts. The remainder goes into your taxable accounts.

Don’t forget that when you have capital losses, they’re netted out against your capital gains. And as long as you held them for a year or more, you qualify for the more favorable capital gains treatment.

Are you interested in seeing how much you can potentially contribute to tax-deferred accounts? Give us a call at 619.255.9554 or send us an email.

As a member of a Board of Directors, you are responsible at a high level for the activities of the organization, whether it’s a nonprofit or corporation. You’re not concerned with the nitty-gritty details, because the officers of the organization handle those. The mission of the corporate board is to maximize the benefits to the shareholders.

Bylaws of the organization spell out what your specific duties are, but there are some common tasks that most boards share.

Board members act as fiduciaries to the organization. (Just as your independent wealth manager is a fiduciary to your portfolio!) Meaning that they must put the organization before their own personal interests.

At the beginning of the organization’s existence, the board is responsible for its mission. A mission statement is important to develop, so everyone’s rowing in the same direction. Later on, a board may decide to change the mission of the organization, but this should only be done after careful thought.

The board will set the overall policy for the organization, without getting bogged down in the daily minutia. It also oversees the organization’s officers and executives. At the end of the year, the board holds an annual meeting where any changes to mission, bylaws, etc. are announced or any elections held. At a corporation annual meeting, there’s usually the announcement of any dividends being paid.

Organizations like to have certain professions on their board, such as financial advisors, accountants, or lawyers.

Potential liability concern should not be a deterrent when considering a seat on the board of directors.

If you’re concerned about liability, know that board members have a pretty wide latitude when dealing with policies and other oversight duties. Many companies offer officer and director liability insurance. But you can be sued and held personally liable for acts committed while serving, which this type of insurance doesn’t cover.

For nonprofits, the board typically hires the executive director, and may face issues if the director is derelict in their duties. If you’re on the board of a nonprofit, the expectation is that you will fundraise for the mission. This could be your own money, finding outside sponsors or donors, etc. You’ll set policy as a board member, but implementation is left up to the staff.

As a board member you can help direct operations for a cause you believe in.

Most people find that a great way to give back to their community is to join the board of a nonprofit whose mission they believe in and are passionate about. You may find similar satisfaction with a corporate board.

Charitable boards tend to be volunteer positions only, which makes it all the more important to ensure that the mission aligns with your own beliefs and values! Nonprofits, especially the smaller ones in your community, run lean. This provides a greater opportunity for you to be hands-on in shaping the policies and programs of the charity you’ve chosen to work with.

Sitting on the board of directors will strengthen you leadership skills

Being on a board, whether it’s for a company or nonprofit, gives you the chance to experience different leadership styles. Watch how other leaders respond to issues that may be similar to your own. You’ll also likely be exposed to situations you’re not already familiar with.

Working through them with people you may not know as well, outside your own comfort zone, provides an opening to really stretch yourself as a leader. Eventually you may develop very close friendships with the other board members, as a result of spending so much time together solving problems.

You may even have skills you weren’t aware of, that you may be called upon to deploy as you serve. You may also discover some weaknesses that you didn’t know about, and can begin to work on them in order to improve your leadership capabilities. Awareness is half the battle!

Broaden your network with other Board of Directors

Unless you’re joining a group of old friends, you should be meeting some people you might not otherwise have met. A board that’s composed of directors based on the needs of the organization, instead of who knows whom, is an excellent way to expand your network.

When you develop tight friendships with other leaders, it often results each of you getting to know their connections. You end up helping to build each other’s networks.

As you work together, serving the organization, you’ll be able to see the strengths and weaknesses of your fellow board members.

Remember that networking is about building relationships. Meeting with your fellow board members outside scheduled times, can help you better solve problems. Face-to-face meetings are always preferable, but not always possible. Phone calls or online meetings can assist you to fill in the gaps.

Some extra income

As noted above, most of the time you’re going to be volunteering, if you’re sitting on a charity board. By contrast, most companies recognize that the monthly and annual meetings and travel do add up in terms of time and resources. Some of them will provide a stipend for your service.

Especially when you’re facing retirement, serving on a board can keep income coming in as well as keeping your business skills sharp. Which you may not need for business after you retire, but can keep you in good mental shape.

Career perks

You may have heard that people who serve on boards are more likely to be promoted. Anyone trying to get you to sit on their board has probably mentioned that to you! In fact, it’s true.

An article in Harvard Business Review showed that being on a board does provide career perks. In addition to being promoted, those who serve on boards are more likely to be named as CEO and often see an uptick in their annual income.

It’s a seal of approval to be chosen for a board, especially a corporate one. Other executives are demonstrating their belief that you have leadership skills. In fact, large companies groom their execs by having them serve on other boards.

At Platt Wealth Management, we understand the importance of serving on a board of directors. Both our financial planners sit on boards for a variety of different causes and continue to stay involved.

If you’re interested in legacy planning that includes a mission important to you, please call 619.255.9554 or email us to schedule an appointment.

As you can tell by looking at our bios, we at Platt WM like to get involved in charitable organizations! There are a number of ways to have an impact with your giving.

Impact of Tax Cuts & Jobs Act (TCJA) on charitable giving

Previously, individuals who donated to charity were able to take tax deductions for their contributions. Donors enjoyed the emotional benefits that come with giving gifts. According to new research, it turns out that giving is more pleasurable for the human brain than receiving is! They also received a tax benefit from their giving.

The deductions for charity could only be taken for those who itemized their deductions. Which pretty much anyone with a mortgage did anyway, to capture the interest deduction.

Certain other deductions are known as “above-the-line”, because you don’t have to itemize to take them. IRA and Health Savings Account (HSA) contributions are examples of above-the-line deductions.

The TCJA increased the standard deduction significantly, so fewer people will itemize. Most taxpayers will save more money if they use the new standard deduction instead of itemizing.  Unfortunately for Californians and others who live in states with higher taxes, the TCJA limited state and local tax deductions. Even those with significant mortgage interest will probably not itemize either.

This has a big impact on 501(c)3 charities, who relied on donors able to itemize their deductions and save taxes on their donations. Although we’d like to think that people donate out of pure altruism, in reality the tax deduction provided a great incentive for people to give.

Which charitable organization to give to

Many of our clients (as well as our planners) have causes that are near and dear to our hearts. Charitable giving may already be mapped out for the year.

But if not, treat your philanthropy like an investment. You can make a bigger impact if you choose a small number of recipients and divide your money and time between them. As opposed to giving randomly as people ask you for donations.

Research the organization online. It’s also a good idea to see if any of your friends and family give to them, and if they have an opinion on it. You can always visit a local organization, though in some cases you might need to call first and make an appointment. There are online websites such as Charity Navigator, GiveWell, and Impact Matters that provide scorecards on effectiveness.

To be a qualified charity, the organization has to be a 501(c)3 group that qualifies for tax exemption per the US Treasury. Generally, qualified charities will be able to furnish their tax-exempt letter that states their qualifications.

Be aware that some charitable missions require a bigger administration budget in order for the organization to do its work properly. Don’t automatically discount a charity on the basis of budget. Of course after doing your due diligence you might cross them off your list anyway.

Find out what will actually be achieved with your charity dollars. For example, you might be offered a chance to donate to a training program for offenders going through rehab. But what you want to know is how many of the offenders will find jobs with this training program, not how much the training program itself costs.

How much money does the organization have? Your charity dollar often goes farther in an organization that doesn’t have much money or is underfunded, compared to a large, well-funded charity.

Donating to a charitable organization

Some higher-income people may still find that they itemize, so they’ll still be able to take a charitable deduction. Charities still need donations and will welcome them! Many donors make an effort around Christmas and Thanksgiving to donate, but groups usually need money and help year-round.

Consider making recurring donations. Household budgeting is much easier when you’re getting a steady paycheck every couple of weeks instead of large project deposits every few months. Similarly, it’s much easier for charities to allocate resources when they have some consistent income.

Check to see if your employer matches a portion of your contribution. It’s a great way to maximize your donations.

Have a lot of friends and family who are always asking for money for their pet charities? Or constantly run into different groups in front of your local grocery store? Just because someone asks you to give doesn’t mean that you have to say yes.

It’s best to have a polite “no” ready to go in all of these situations. You might say that your charity money is already allocated, or that you’ve chosen your charities for the year. Don’t feel bad about saying no. There are plenty of qualified charities and most of them need help, but you can’t help all of them.

Volunteering with a charitable organization

Time is another valuable commodity that many nonprofits could use more of! This is a great way to get the whole family involved, especially if you have young children. They get to see the impact of their efforts, while you’re all spending time together.

Ladling out the food at Thanksgiving is fun, but many groups have more urgent needs. Frequently their need is for expertise in some aspect of business, which you can help with. Smaller charities can almost always use marketing help, for example. They might need copywriters to help with their fundraising letters. Accountants to keep an eye on the books.

Fundraising – especially now that fewer people are donating the way they used to because they no longer have the tax incentive!

Qualified Charitable Deduction (QCD)

This deduction is still alive and well. It’s not a deduction, exactly, but it can help you avoid taxes at the same time you donate to charitable organizations of your choice. And you can donate up to $100,000 each year.

Rather than taking your required minimum distribution (RMD) as income and paying tax on it, you can redirect the distribution to a qualified 501(c)3 charity of your choice.

It’s very important that the money does not come to you first.  Then it still is considered income, and you’ll pay tax on it. Sending it to the charity up-front means that it’s not income to you.

This tactic works best if you’re at the age where you need to take RMDs, and you don’t need the income from your RMD to supplement your portfolio.

You may now be wondering if the new SECURE Act will change this equation. As a reminder, SECURE shifts the RMD start age to 72, for anyone who turned 70 ½ after 12/31/19.

However, although you still need to be at least age 70 ½ to make a QCD, you don’t have to wait until you turn 72 to do it. In other words, even though your RMD age is pushed back by a year and a half, your ability to do the QCD doesn’t change from age 70 ½.

If you’re a 5% business owner, you too will need to begin RMDs at age 72. Even if you’re still working for the company at that age.

In other words, don’t be discouraged by the lack of a tax deduction. There are still plenty of ways to support your favorite nonprofit.

Interested in talking to one of our planners? You can email us or call 619.255.9554.