Many people make charitable gifts when the opportunity arises, from going to a fundraiser or supporting the local youth sports team to mailing out a check at the end of the year. While these types of donations are both generous and meaningful, there are more strategic ways to give.
For Feds who have built assets outside the Thrift Savings Plan (TSP), combining appreciated assets with a donor-advised fund strategy may be a better option. Often, this can simplify the process of tracking donations while potentially creating greater tax benefits and maximizing your income.
Why Go Beyond Cash Giving?
Cash donations are simple and familiar, but they’re typically not the most efficient option. If you donate appreciated stock or other financial assets instead, you may be able to:
- Avoid capital gainstaxes you would have owed if you sold the asset.
- Deduct the full fair market valueof the stock (if you’ve held it for more than one year).
This approach may allow you to give more to charity without increasing your out-of-pocket cost. And while it may sound a bit confusing, it’s typically quite simple, even for those new to investing.
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Donor-Advised Funds (DAFs) Make Giving Easier
A donor-advised fund is a simple, flexible tool that helps you organize and efficiently manage your charitable giving. It’s essentially a dedicated charitable account that allows you to deposit assets and potentially get a tax deduction right away. Then, you’re able to distribute funds to the charities of your choice at a later date, and in some cases, spread the gifts out over time.
It's important to note that you cannot make contributions to a DAF from your TSP, IRA, or other retirement plans. Instead, a donor-advised fund strategy involves contributing assets from a non-retirement brokerage account.
Some key advantages of DAFs include:
- Timing flexibility: You can contribute in a high-income year, when the tax deduction may be more valuable, and decide later which charities will receive the funds.
- Simplified tracking: A single contribution can support multiple organizations over time, with just one tax receipt to manage.
- Potential for tax-free growth: You can invest assets in the DAF, giving your charitable dollars the opportunity to grow before they’re granted.
For many Feds, this strategy works best when the DAF is funded with appreciated stock, due to the potential tax benefits. You can also pair this with a charitable bunching strategy, grouping multiple years’ worth of donations into a single year to exceed the standard deduction and get the full benefit of itemizing tax deductions.
Putting it All Together
If you’re considering a larger charitable gift, start by reviewing any appreciated assets held in a taxable brokerage account. In many cases, donating these assets, rather than selling them, may reduce your tax liability and potentially increase the impact of your giving.
Combining donor-advised fund strategies with your retirement and tax planning may create additional opportunities. For example, pairing charitable contributions with high-income years, Roth conversions, or TSP withdrawals may help you better manage your tax brackets.
While it’s not overly complex, this is still a relatively advanced strategy. Before making any decisions, it’s best to talk with a CERTIFIED FINANCIAL PLANNER™ professional who understands how it works in relation to your federal benefits. Reach out to the team at Serving Those Who Serve at [email protected] for personalized guidance.
The Thrift Savings Plan (TSP) is a retirement savings plan for federal employees and members of the uniformed services, including the ready reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The federal retirement Thrift Investment Board (FRTIB) administers the TSP. 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.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. 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. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual 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. **
