Advice on retirement with high levels of charitable donations

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prioritarian
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Advice on retirement with high levels of charitable donations

Post by prioritarian »

I have a long-term goal of donating the majority of my savings/investments to charity. It seems to me that much of the tax efficiency advice on Bogleheads does not make sense in this case. For example, I plan on maxing out deductible charitable deductions every year prior to 72 70.5 at which point I hope to max out MRDs and have additional charitable contributions.

I'd like advice/comments, and link to resources on this topic, or a link to previous discussions on maxing out tax efficiency for people with a high ratio of charitable donations to income in retirement. (I'd like to grow my charitable contributions as tax efficiently as possible.)

Age: 53
~$687,000 in Taxable
~$715,000 in IRA
~$77,000 in Roth IRA (only because no eligibility for IRA deduction)
~$358,000 in 457b
~$26,000 in 403b
~$131,000 in 401a
~$6,600 in HSA

SS Benefit at age 70: $37,000

Total savings: ~$2,001,000

Annual savings:
403b: $26,000
401a: $7,500
Roth IRA: 7,000
Taxable: ~$39,000

Desired retirement age: ~62
Desired retirement income: ~$40,000 in 2021 dollars

Edit: I should have provided more details. Based, in part, on reading and lurking on bogleheads my plan is to use the 30% limit on appreciated security donation aggressively when I retire to spend down IRA (plan on rolling over tax deferred into IRA). I also plan on cash gifts which I believe allow for an additional 20% of deductability (depending on charity status). And finally, I expect to use low-income retirement years to spend down my IRA and move funds into the Roth (to some somewhat optimal fraction of the future 25% tax bracket). The goal is to not have to pay taxes on MRDs so that I can donate more to charity over my lifetime.

I guess I want to know if this makes sense and if I am missing anything.
Last edited by prioritarian on Wed Oct 27, 2021 1:27 pm, edited 3 times in total.
Pops1860
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Re: Advice on retirement with high levels of charitable donations

Post by Pops1860 »

I asume you mean QCDs (Qualiified Charitible Distributions) when you mentioned 'maximizing' RMDs when they started being required. They (QCDs) are the best tax-advantaged way for retireees to donate - no tax paid going in (to trad IRAs) and no tax paid coming out, and 'itemized deductions' no longer an issue. True tax avoidance, for charitible contributions. And not limited to RMD amount - you can donate more if desired.

For other advice, I'll leave that for additional posters. Good luck.
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Re: Advice on retirement with high levels of charitable donations

Post by sport »

Pops1860 wrote: Sun Oct 24, 2021 12:46 pm ...And not limited to RMD amount - you can donate more if desired.
There is a yearly maximum of 100K.
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Re: Advice on retirement with high levels of charitable donations

Post by fposte »

Have you considered a role for a donor advised fund? And have you drafted a will that follows those charitable intentions?
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prioritarian
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

Pops1860 wrote: Sun Oct 24, 2021 12:46 pm I asume you mean QCDs (Qualiified Charitible Distributions) when you mentioned 'maximizing' RMDs when they started being required.
Yes, with some sequence of return luck and depending on how long I work I may be able to max out QCDs .
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

fposte wrote: Sun Oct 24, 2021 1:29 pm Have you considered a role for a donor advised fund? And have you drafted a will that follows those charitable intentions?
I currently lump 3 years of charitable contributions (e.g. appreciated equity ETFs and some cash) together to better benefit from itemization and have not yet seen an advantage for a DAF (which incurs a small additional fee).

Am I missing something?
Last edited by prioritarian on Sun Oct 24, 2021 4:02 pm, edited 1 time in total.
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celia
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Re: Advice on retirement with high levels of charitable donations

Post by celia »

QCD eligibility starts at 70.5 (before RMDs).

I admire your generosity but you should first plan for yourself and the worst-case scenario. That is probably becoming disabled tomorrow after a traffic accident. Not only would you eventually lose your wages, use up your insurance benefits, you would need to support yourself (and any dependants???) while possibly having medical expenses not covered by insurance.

How have you insured future unknown large expenses are covered?
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

celia wrote: Sun Oct 24, 2021 4:01 pm QCD eligibility starts at 70.5 (before RMDs).

I admire your generosity but you should first plan for yourself and the worst-case scenario. That is probably becoming disabled tomorrow after a traffic accident. Not only would you eventually lose your wages, use up your insurance benefits, you would need to support yourself (and any dependants???) while possibly having medical expenses not covered by insurance.

How have you insured future unknown large expenses are covered?
Thanks... for the correction. It's strange but good that QCD is available before MRDs.

I have reasonable short and long-term disability insurance via my employer (~50% of current income) and have been thinking about buying more.

For healthcare, I can buy into my partner's insurance at low cost if I no longer have employer coverage. I am also assuming that ACA will continue at current levels of subsidy. As a fallback, I can also obtain healthcare and disability care by moving to the UK or an EU nation (triple citizenship).

I don't have dependents and my domestic partner is even more financially sound than I (~85% income pension, insurance for life, and retirement savings).
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Re: Advice on retirement with high levels of charitable donations

Post by inbox788 »

prioritarian wrote: Sun Oct 24, 2021 12:34 pm (I'd like to grow my charitable contributions as tax efficiently as possible.)
I understand the sentiment, but I'm not sure that's a well defined goal. I'm just learning about RMD and QCD, so unfamiliar when 100k limit and other limits override. "Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply." https://www.irs.gov/publications/p526

Working backwards from a future age, let's say in your 80's, can one donate $100k out of the $111k RMD and report $11k income (taking 24k standard deduction?) By 84, 29k income is over the standard deduction. Is it more "tax efficient" wasting income below the deduction or paying taxes on the amount over? And as the tax margins grow and cross thresholds? And presumably there's other income, so it probably necessary to plan for a particular tax rate, say 12% or 24% to aim for, but looks like there will be early years where that will fall short and later years where it will overshoot.

Year Your age Estimated RMD amount Estimated account balance
2021 81 $111,731.84 $2,008,268.16
2022 82 $117,442.58 $2,011,321.67
2023 83 $123,393.97 $2,008,607.00
2024 84 $129,587.55 $1,999,535.87
2025 85 $135,103.77 $1,984,404.25
2026 86 $140,737.89 $1,962,730.62
2027 87 $146,472.43 $1,934,022.02
2028 88 $152,285.20 $1,897,778.15
2029 89 $158,148.18 $1,853,496.65
2030 90 $162,587.43 $1,802,119.02

https://www.schwab.com/ira/understand-i ... lators/rmd
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Re: Advice on retirement with high levels of charitable donations

Post by Mike Scott »

You need to define "high level of charitable donations" for yourself. You don't have to justify it to anyone else but you do need a number or a goal you are trying to hit. For now, donating taxable stock which has the highest capital gains could be done directly or through a DAF using "bunching" up to the number you chose or the maximum annual deductible level. Continue to do this until you can start QCDs and then either switch to QCDs or do both. Be generous but hold on to enough to care for yourself and then leave the remainder to charity in your will.
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

inbox788 wrote: Sun Oct 24, 2021 4:54 pm
prioritarian wrote: Sun Oct 24, 2021 12:34 pm (I'd like to grow my charitable contributions as tax efficiently as possible.)
I understand the sentiment, but I'm not sure that's a well defined goal. I'm just learning about RMD and QCD, so unfamiliar when 100k limit and other limits override. "Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply." https://www.irs.gov/publications/p526

Working backwards from a future age, let's say in your 80's, can one donate $100k out of the $111k RMD and report $11k income (taking 24k standard deduction?) By 84, 29k income is over the standard deduction. Is it more "tax efficient" wasting income below the deduction or paying taxes on the amount over? And as the tax margins grow and cross thresholds? And presumably there's other income, so it probably necessary to plan for a particular tax rate, say 12% or 24% to aim for, but looks like there will be early years where that will fall short and later years where it will overshoot.

Year Your age Estimated RMD amount Estimated account balance
2021 81 $111,731.84 $2,008,268.16
2022 82 $117,442.58 $2,011,321.67
2023 83 $123,393.97 $2,008,607.00
2024 84 $129,587.55 $1,999,535.87
2025 85 $135,103.77 $1,984,404.25
2026 86 $140,737.89 $1,962,730.62
2027 87 $146,472.43 $1,934,022.02
2028 88 $152,285.20 $1,897,778.15
2029 89 $158,148.18 $1,853,496.65
2030 90 $162,587.43 $1,802,119.02

https://www.schwab.com/ira/understand-i ... lators/rmd
I should have provided more details. Based, in part, on reading and lurking on bogleheads my plan is to use the 30% limit on appreciated security donation aggressively when I retire to spend down IRA (plan on rolling over tax deferred into IRA). I also plan on cash gifts which I believe allow for an additional 20% of deductability (depending on charity status). And finally, I expect to use low-income retirement years to spend down my IRA and move funds into the Roth (to some somewhat optimal fraction of the future 25% tax bracket). The goal is to not have to pay taxes on MRDs so that I can donate more to charity over my lifetime.

I should note that I'm perfectly OK with non-deductible donations based on my "safe withdrawal+donation schedule".

I guess I want to know if this makes sense and if I am missing anything.
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

Mike Scott wrote: Sun Oct 24, 2021 4:58 pm For now, donating taxable stock which has the highest capital gains could be done directly or through a DAF using "bunching" up to the number you chose or the maximum annual deductible level.
I already do this via bunched direct appreciated ETF donation and don't yet see the advantage of a DAF (given the small expense fee). Am I missing some other advantage of a DAF?
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Re: Advice on retirement with high levels of charitable donations

Post by celia »

inbox788 wrote: Sun Oct 24, 2021 4:54 pm Working backwards from a future age, let's say in your 80's, can one donate $100k out of the $111k RMD and report $11k income (taking 24k standard deduction?) By 84, 29k income is over the standard deduction.
Keep in mind, that in tax-deferred accounts, when you contributed to them (in the US), you were deferring the tax until later. ‘LATER’ is defined as starting by age 72 (recently was 70.5). Congress allowed you to defer, but you always owed that tax. The money owed was left in the account. You are really investing for yourself and the feds and possibly your state. The money was never all your to begin with. But as you retire, Congress lets you give up to $100K of it to a US-recognized charity each year.
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Re: Advice on retirement with high levels of charitable donations

Post by Mike Scott »

A DAF has some particular qualities you may or may not need. Some small charities can handle a check from a DAF easier than a stock transfer. Some people do "bunched contributions" to the DAF but smooth the giving over some period of time. Also, other people can make deductible contributions to your DAF if it becomes a family or group thing.
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Re: Advice on retirement with high levels of charitable donations

Post by Rob54keep »

prioritarian wrote: Sun Oct 24, 2021 5:36 pm
Mike Scott wrote: Sun Oct 24, 2021 4:58 pm For now, donating taxable stock which has the highest capital gains could be done directly or through a DAF using "bunching" up to the number you chose or the maximum annual deductible level.
I already do this via bunched direct appreciated ETF donation and don't yet see the advantage of a DAF (given the small expense fee). Am I missing some other advantage of a DAF?
A DAF allows me to take the deduction in the year I contribute to it but then I can distribute the donations over any given period of time/years to many different charitable organizations. As a result, these contributions normally grow over time.
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Re: Advice on retirement with high levels of charitable donations

Post by trirod »

prioritarian wrote: Sun Oct 24, 2021 3:52 pm
fposte wrote: Sun Oct 24, 2021 1:29 pm Have you considered a role for a donor advised fund? And have you drafted a will that follows those charitable intentions?
I currently lump 3 years of charitable contributions (e.g. appreciated equity ETFs and some cash) together to better benefit from itemization and have not yet seen an advantage for a DAF (which incurs a small additional fee).

Am I missing something?
In my last year of working prior to semi-retirement I made a large contribution to a DAF since I knew that in future years my tax bracket would be much lower and that I would be taking the standard deduction pretty much every year. Yes I could have made those contributions directly to charities but they were large enough I wanted time to think about where I wanted the donations to go and to smooth the donations over the next 10 years or so. That was a big benefit of a DAF to me.
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Re: Advice on retirement with high levels of charitable donations

Post by Running Bum »

prioritarian wrote: Sun Oct 24, 2021 5:36 pm
Mike Scott wrote: Sun Oct 24, 2021 4:58 pm For now, donating taxable stock which has the highest capital gains could be done directly or through a DAF using "bunching" up to the number you chose or the maximum annual deductible level.
I already do this via bunched direct appreciated ETF donation and don't yet see the advantage of a DAF (given the small expense fee). Am I missing some other advantage of a DAF?
A DAF is convenient if you'd like to bunch your charitable deductions in a single year but disburse to charities yearly. I expect the DAF donation I made a few years ago to last for 10-15 years, if not longer. I had a year where I was going to have a lot of taxable income due to restructuring my taxable account, so it was a good year to make a large DAF contribution to reduce taxes that year.

The investment growth in a DAF is tax free, which perhaps means more actual giving. I'm not sure of the actual value of this vs. letting investments grow in your own account and donating them later. You might find that DAF donations now while you are working (presumably in a higher tax bracket now than later) has more advantage than waiting for QCDs or a later DAF donation. It probably depends on it you ever plan to sell taxable assets for your own expenses. The stepped up inheritance basis makes it attractive to leave those alone, but that could change in your lifetime.

Individual charities do not always handle stock donations well. Receiving a check from a DAF is probably more convenient, and may be worth it to them to receive a slightly smaller amount (due to DAF expense fees) by check then to handle a stock sale. No first hand knowledge here.

A DAF allows you to remain anonymous if you wish. I've noticed that some charities sell or share donor lists. I prefer to find charities I want to donate to, not have many charities find me.

Could very well be that none of these apply to you, but it's worth considering.
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

Running Bum wrote: Sun Oct 24, 2021 6:10 pm The investment growth in a DAF is tax free, which perhaps means more actual giving. I'm not sure of the actual value of this vs. letting investments grow in your own account and donating them later.
This could apply to me since I do pay taxes on dividends and cap gains. I think I need to spend some time with a spreadsheet to look at this.

The stepped up inheritance basis makes it attractive to leave those alone, but that could change in your lifetime.
This has been bugging me because it might be the most efficient way to give but I also suspect that there is also a charity "utility" cost of delay.
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Re: Advice on retirement with high levels of charitable donations

Post by grabiner »

Running Bum wrote: Sun Oct 24, 2021 6:10 pm The investment growth in a DAF is tax free, which perhaps means more actual giving. I'm not sure of the actual value of this vs. letting investments grow in your own account and donating them later.
I worked this out: Donor-advised fund versus direct stock donation The extra cost of 0.60% on a DAF under $500K is slightly more than the the tax cost on a stock fund (dividends only, since the stock will be donated rather than realizing a capital gain). Thus, if you want to donate stock to charity in the future, it is better to hold on to the stock and donate it when you want to make the donation.

The DAF does have an advantage if you can bunch deductions. If you are a married couple without a large mortgage, there is a large gap between the $10,000 SALT limit and the standard deduction, so you get more deductions if you make several years' DAF contributions in one year, then use the DAF in later years and take the standard deduction. For singles, the advantage is much less, particularly if you make some donations which cannot easily be done from the DAF and thus have more than the $10,000 SALT every year.
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Re: Advice on retirement with high levels of charitable donations

Post by Tubes »

As a treasurer of a small charity, I loved getting DAF donations.

1) A check was much easier than stock.

2) Not only does a DAF help the donor smooth out donations, it helps the charity receive non-lumped donations.

When we'd get a lump, we were not sure if it was a one-off or part of some alternate year donation. It required extra resources to engage with the donor.

A worse problem was working with the board of directors. They'd see the lump and sometimes try to use it in somewhat irresponsible ways. As treasurer, I had to calm them down and explain we had to amortize the lump, and not assume the same lump would become the new yearly norm.

It just helps if donors are more consistent year to year. You help the charity rely on a more consistent giving number for planning.

DAFs can help with this.
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Re: Advice on retirement with high levels of charitable donations

Post by inbox788 »

prioritarian wrote: Sun Oct 24, 2021 5:25 pmI should have provided more details. Based, in part, on reading and lurking on bogleheads my plan is to use the 30% limit on appreciated security donation aggressively when I retire to spend down IRA (plan on rolling over tax deferred into IRA). I also plan on cash gifts which I believe allow for an additional 20% of deductability (depending on charity status). And finally, I expect to use low-income retirement years to spend down my IRA and move funds into the Roth (to some somewhat optimal fraction of the future 25% tax bracket). The goal is to not have to pay taxes on MRDs so that I can donate more to charity over my lifetime.

I should note that I'm perfectly OK with non-deductible donations based on my "safe withdrawal+donation schedule".

I guess I want to know if this makes sense and if I am missing anything.
I'm not sure if this is clear, but my understanding is you can donate getting you above the standard deduction and deduct up to a certain limit and take out RMD or you can donate from your RMD directly as QCD up to 100k and reduce income and take the standard deduction potentially keeping you in a lower tax bracket. You could do both, but I don't think that's the most efficient. And I don't think cash gifts are better if QCD is an option (after age 72).

https://www.fidelity.com/learning-cente ... the-basics

The point of computing 100k threshold in the 80's is to get an idea of the large size balance that might hit the 100k limit, and it's quite sizeable. You will likely have spent down the tax deferred account somewhat prior to it becoming such a "problem", but if your other accounts have sufficient funds to live off, you may be able to donate more overall to charity with QCD letting the taxdeferred account grow larger.
celia wrote: Sun Oct 24, 2021 5:43 pmKeep in mind, that in tax-deferred accounts, when you contributed to them (in the US), you were deferring the tax until later. ‘LATER’ is defined as starting by age 72 (recently was 70.5). Congress allowed you to defer, but you always owed that tax. The money owed was left in the account. You are really investing for yourself and the feds and possibly your state. The money was never all your to begin with. But as you retire, Congress lets you give up to $100K of it to a US-recognized charity each year.
As I understand it, if you generously choose to donate your portion as a QCD, Uncle Sam will generously donate his portion as well, up to 100k, and that fulfills part or all of your RMD for the year, without generating any income. Taking out any RMD may end up being partly taxed, even if donated, and may increase your AGI/taxable income.
prioritarian wrote: Sun Oct 24, 2021 6:20 pm
Running Bum wrote: Sun Oct 24, 2021 6:10 pm The investment growth in a DAF is tax free, which perhaps means more actual giving. I'm not sure of the actual value of this vs. letting investments grow in your own account and donating them later.
This could apply to me since I do pay taxes on dividends and cap gains. I think I need to spend some time with a spreadsheet to look at this.
If the investments grow, you will get a bigger deduction, which should be bigger than the dividend tax.
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

inbox788 wrote: Wed Oct 27, 2021 12:11 am And I don't think cash gifts are better if QCD is an option (after age 72).
The cash gifts would likely be prior to age 70 (the age at which I can start QCDing). The goal of cash gifts is to get me past the 30% deduction limit for appreciated securities with the goal of making my future retirement expenses as tax efficient as possible.
The point of computing 100k threshold in the 80's is to get an idea of the large size balance that might hit the 100k limit, and it's quite sizeable. You will likely have spent down the tax deferred account somewhat prior to it becoming such a "problem", but if your other accounts have sufficient funds to live off, you may be able to donate more overall to charity with QCD letting the taxdeferred account grow larger.
My current annual expenses are around $24,000 and I doubled them to $40,000 for planning purposes but I expect I will continue my current spending levels in retirement. As long as I do not experience a poor "sequence of returns" and there are moderate levels of inflation, I may be able to use the entire 100k limit (hopefully it is adjusted for inflation in the future).
If the [DAF] investments grow, you will get a bigger deduction, which should be bigger than the dividend tax.
I don't have an emergency fund and minimize cash so my pre-age-70 choice is whether I donate bunched appreciated equities (what I currently do) or use a DAF. I just looked up the DAF fee at Fido (again) and it was 0.6%. According to the Boglehead wiki the ETFs I own have an estimated tax drag of 0.23-0.33%*, so it seems to me that bunched equity donation is more tax efficient than holding the same positions in a DAF.

*https://www.bogleheads.org/wiki/Tax-eff ... _placement
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

grabiner wrote: Sun Oct 24, 2021 6:40 pm
Running Bum wrote: Sun Oct 24, 2021 6:10 pm The investment growth in a DAF is tax free, which perhaps means more actual giving. I'm not sure of the actual value of this vs. letting investments grow in your own account and donating them later.
I worked this out: Donor-advised fund versus direct stock donation The extra cost of 0.60% on a DAF under $500K is slightly more than the the tax cost on a stock fund (dividends only, since the stock will be donated rather than realizing a capital gain). Thus, if you want to donate stock to charity in the future, it is better to hold on to the stock and donate it when you want to make the donation.
That was very helpful. Thank you.
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Re: Advice on retirement with high levels of charitable donations

Post by sport »

prioritarian wrote: Wed Oct 27, 2021 10:45 am The cash gifts would likely be prior to age 70 (the age at which I can start QCDing).
You have to be at least age 70.5 at the time a QCD is made.
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Re: Advice on retirement with high levels of charitable donations

Post by inbox788 »

prioritarian wrote: Wed Oct 27, 2021 10:45 amThe cash gifts would likely be prior to age 70 (the age at which I can start QCDing). The goal of cash gifts is to get me past the 30% deduction limit for appreciated securities with the goal of making my future retirement expenses as tax efficient as possible.
I take it the charity needs or your trying to provide more than the 30% of your income when you're 65-70? You can make appreciated security donations into a DAF now (or when you're 60-65) with tax benefits that will likely exceed cash donations later. [Assuming you're not now maxed out until age 70]
prioritarian wrote: Wed Oct 27, 2021 10:45 am
If the [DAF] investments grow, you will get a bigger deduction, which should be bigger than the dividend tax.
I don't have an emergency fund and minimize cash so my pre-age-70 choice is whether I donate bunched appreciated equities (what I currently do) or use a DAF. I just looked up the DAF fee at Fido (again) and it was 0.6%. According to the Boglehead wiki the ETFs I own have an estimated tax drag of 0.23-0.33%*, so it seems to me that bunched equity donation is more tax efficient than holding the same positions in a DAF.

*https://www.bogleheads.org/wiki/Tax-eff ... _placement
Investment growth outside DAF give you more deduction. Investment growth in a DAF no longer benefit. The growth is still tax-free, but no additional deductions. I assume the growth and additional deduction will outweigh all the fee-drag and taxes no dividends in the long run.

As long as the charity can accept the bunched donations and can deal with the timing of the bunches, it's the most direct and efficient path. It's a bit less efficient, but I've decoupled this and pass thru the donations thru a DAF to smooth out the donations and provide for charities that don't handle non-cash donations well. And if you've got more than one charity, it's worth considering the time savings in complexity.

One inefficiency to consider is the lost deduction between the standard deduction for every lumped year you make, up to $14,800 depending on your particular situation. Fewer larger lumps reduce this inefficiency.
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

inbox788 wrote: Wed Oct 27, 2021 11:30 am I take it the charity needs or your trying to provide more than the 30% of your income when you're 65-70?
Yes ... mostly during retirement when my cap gains bracket will be lower. I think this only makes sense if I can use this deduction to create a little more space in my Roth for living expenses (I also plan on spending down some of the bonds in my taxable account).

I think when it comes to charitable giving one of my challenges is that after QCDs and 30%, just letting assets appreciate for donation after death may be the most tax efficient strategy. My current rationale for not doing this is that I believe there is a QALY (quality-adjusted life-year) utility cost of deferring donations by decades.
Fewer larger lumps reduce this inefficiency.
This is my strategy (even though it's a bit psychologically painful).
Last edited by prioritarian on Wed Oct 27, 2021 1:59 pm, edited 1 time in total.
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Re: Advice on retirement with high levels of charitable donations

Post by MathWizard »

inbox788 wrote: Sun Oct 24, 2021 4:54 pm
prioritarian wrote: Sun Oct 24, 2021 12:34 pm (I'd like to grow my charitable contributions as tax efficiently as possible.)
I understand the sentiment, but I'm not sure that's a well defined goal. I'm just learning about RMD and QCD, so unfamiliar when 100k limit and other limits override. "Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply." https://www.irs.gov/publications/p526

...
I do not believe that the percentage of AGI limits is relevant.

A QCD is not a charitable deduction, it is just not included in taxable income.
If it were a deduction, you would have to itemize to get it, but that is the beauty of a QCD, you can
take the standard deduction and not pay taxes on what you give to charity, assuming it comes from an IRA.

Unfortunately, I cannot do that, as I am not old enough yet.
Topic Author
prioritarian
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

MathWizard wrote: Wed Oct 27, 2021 1:56 pm
inbox788 wrote: Sun Oct 24, 2021 4:54 pm
prioritarian wrote: Sun Oct 24, 2021 12:34 pm (I'd like to grow my charitable contributions as tax efficiently as possible.)
I understand the sentiment, but I'm not sure that's a well defined goal. I'm just learning about RMD and QCD, so unfamiliar when 100k limit and other limits override. "Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply." https://www.irs.gov/publications/p526

...
expect

I do not believe that the percentage of AGI limits is relevant.

A QCD is not a charitable deduction, it is just not included in taxable income.
If it were a deduction, you would have to itemize to get it, but that is the beauty of a QCD, you can
take the standard deduction and not pay taxes on what you give to charity, assuming it comes from an IRA.

Unfortunately, I cannot do that, as I am not old enough yet.

The QCD is a generous tax break but its main limitation is that it's not inflation adjusted. For example: assuming 3% inflation the $100k limit will drop to ~$56k in today's dollars by 2041. This is why I expect that I will end up maxing out QCDs and donating via additional mechanisms after age 70.5.
inbox788
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Re: Advice on retirement with high levels of charitable donations

Post by inbox788 »

MathWizard wrote: Wed Oct 27, 2021 1:56 pm I do not believe that the percentage of AGI limits is relevant.
That's how I'm understanding QCD not impacting AGI. Further, if you're taking out RMD, AGI could be zero.
prioritarian wrote: Wed Oct 27, 2021 2:09 pmThe QCD is a generous tax break but its main limitation is that it's not inflation adjusted. For example: assuming 3% inflation the $100k limit will drop to ~$56k in today's dollars by 2041. This is why I expect that I will end up maxing out QCDs and donating via additional mechanisms after age 70.5.
If you max out QCD with RMD and end up with no AGI, do some deductions go away? If all your retirement income is RMD and capital gains (& SS), does it make sense to lump income every few years and make donations from appreciated stock (taking RMD vs making QCD to zero it out)?
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prioritarian
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

inbox788 wrote: Wed Oct 27, 2021 2:55 pm
MathWizard wrote: Wed Oct 27, 2021 1:56 pm I do not believe that the percentage of AGI limits is relevant.
That's how I'm understanding QCD not impacting AGI. Further, if you're taking out RMD, AGI could be zero.
prioritarian wrote: Wed Oct 27, 2021 2:09 pmThe QCD is a generous tax break but its main limitation is that it's not inflation adjusted. For example: assuming 3% inflation the $100k limit will drop to ~$56k in today's dollars by 2041. This is why I expect that I will end up maxing out QCDs and donating via additional mechanisms after age 70.5.
If you max out QCD with RMD and end up with no AGI, do some deductions go away? If all your retirement income is RMD and capital gains (& SS), does it make sense to lump income every few years and make donations from appreciated stock (taking RMD vs making QCD to zero it out)?
If you have no AGI then the deductions go away but this is unlikely given that I'll be taking SS, at a minimum. If my AGI is too low for allowable deductions I could create "income" via Roth conversions. Depending on my desired income and space for roth conversions, I think it could make sense to lump donations once I'm QCDing.
inbox788
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Re: Advice on retirement with high levels of charitable donations

Post by inbox788 »

prioritarian wrote: Wed Oct 27, 2021 3:17 pmIf you have no AGI then the deductions go away but this is unlikely given that I'll be taking SS, at a minimum. If my AGI is too low for allowable deductions I could create "income" via Roth conversions. Depending on my desired income and space for roth conversions, I think it could make sense to lump donations once I'm QCDing.
Thanks. Makes sense. The optimization problem of Roth conversions, either from "creating income" later that's at zero tax below deduction levels, low tax rates, or during low income years prior to retirement seems somewhat complex. If it's the only option at zero tax, then it's simple, but if it's taking opportunity from another tax-free conversion, then deferring it in a tax-deferred might not make any difference if QCD isn't exhausted one's lifetime. That depends on length of time of investment, returns, and RMD effect. Planning for fixed or minimum amount is hard than just donating whatever is left over (after the heirs get their left overs; or split them), which is my presumptive plan for now.
calwatch
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Re: Advice on retirement with high levels of charitable donations

Post by calwatch »

If you are Ok with a minimum 10% being held in cash and 10% held in bonds, in lieu of a flat fee being deducted annually for DAF maintenance, then Daffy may be right for you as a low cost option. This is the similar model to Schwab with their automated portfolios having a portion in cash making negligible interest. Of course, when the market drops, then that cash will also not drop in value so it's not all bad.

They recently made a change to allow up to $25,000 in stocks per year to be able to be donated at their $3 a month contributor tier, in addition to unlimited cash and credit card donations. viewtopic.php?p=6263605
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WoodSpinner
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Re: Advice on retirement with high levels of charitable donations

Post by WoodSpinner »

prioritarian wrote: Wed Oct 27, 2021 2:09 pm
MathWizard wrote: Wed Oct 27, 2021 1:56 pm
inbox788 wrote: Sun Oct 24, 2021 4:54 pm
prioritarian wrote: Sun Oct 24, 2021 12:34 pm (I'd like to grow my charitable contributions as tax efficiently as possible.)
I understand the sentiment, but I'm not sure that's a well defined goal. I'm just learning about RMD and QCD, so unfamiliar when 100k limit and other limits override. "Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply." https://www.irs.gov/publications/p526

...
expect

I do not believe that the percentage of AGI limits is relevant.

A QCD is not a charitable deduction, it is just not included in taxable income.
If it were a deduction, you would have to itemize to get it, but that is the beauty of a QCD, you can
take the standard deduction and not pay taxes on what you give to charity, assuming it comes from an IRA.

Unfortunately, I cannot do that, as I am not old enough yet.

The QCD is a generous tax break but its main limitation is that it's not inflation adjusted. For example: assuming 3% inflation the $100k limit will drop to ~$56k in today's dollars by 2041. This is why I expect that I will end up maxing out QCDs and donating via additional mechanisms after age 70.5.
You might consider leaving some of your Assets, when you pass, directly to a DAF. This works well if you have someone you can trust to manage the DAF and donations after you pass.

Another question to consider is how resilient is your retirement plan given your plans for donating to charities? I find this a difficult issue to wrestle with since I have only been retired 3 years and am a relatively young, 62. A lot can happen over the rest of my life and I want to make sure I have a reasonable balance between enjoying retirement, charitable donations and family gifting.

Anyway, great thread!

WoodSpinner
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Tubes
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Re: Advice on retirement with high levels of charitable donations

Post by Tubes »

WoodSpinner wrote: Wed Oct 27, 2021 6:18 pm
prioritarian wrote: Wed Oct 27, 2021 2:09 pm
MathWizard wrote: Wed Oct 27, 2021 1:56 pm
inbox788 wrote: Sun Oct 24, 2021 4:54 pm
prioritarian wrote: Sun Oct 24, 2021 12:34 pm (I'd like to grow my charitable contributions as tax efficiently as possible.)
I understand the sentiment, but I'm not sure that's a well defined goal. I'm just learning about RMD and QCD, so unfamiliar when 100k limit and other limits override. "Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply." https://www.irs.gov/publications/p526

...
expect

I do not believe that the percentage of AGI limits is relevant.

A QCD is not a charitable deduction, it is just not included in taxable income.
If it were a deduction, you would have to itemize to get it, but that is the beauty of a QCD, you can
take the standard deduction and not pay taxes on what you give to charity, assuming it comes from an IRA.

Unfortunately, I cannot do that, as I am not old enough yet.

The QCD is a generous tax break but its main limitation is that it's not inflation adjusted. For example: assuming 3% inflation the $100k limit will drop to ~$56k in today's dollars by 2041. This is why I expect that I will end up maxing out QCDs and donating via additional mechanisms after age 70.5.
You might consider leaving some of your Assets, when you pass, directly to a DAF. This works well if you have someone you can trust to manage the DAF and donations after you pass.

Another question to consider is how resilient is your retirement plan given your plans for donating to charities? I find this a difficult issue to wrestle with since I have only been retired 3 years and am a relatively young, 62. A lot can happen over the rest of my life and I want to make sure I have a reasonable balance between enjoying retirement, charitable donations and family gifting.

Anyway, great thread!

WoodSpinner
You can also set up most DAFs to be on auto-pilot after you pass. Basically set up a legacy distribution plan
Topic Author
prioritarian
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

Tubes wrote: Wed Oct 27, 2021 7:07 pm
WoodSpinner wrote: Wed Oct 27, 2021 6:18 pm
prioritarian wrote: Wed Oct 27, 2021 2:09 pm
MathWizard wrote: Wed Oct 27, 2021 1:56 pm
inbox788 wrote: Sun Oct 24, 2021 4:54 pm
I understand the sentiment, but I'm not sure that's a well defined goal. I'm just learning about RMD and QCD, so unfamiliar when 100k limit and other limits override. "Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply." https://www.irs.gov/publications/p526

...
expect

I do not believe that the percentage of AGI limits is relevant.

A QCD is not a charitable deduction, it is just not included in taxable income.
If it were a deduction, you would have to itemize to get it, but that is the beauty of a QCD, you can
take the standard deduction and not pay taxes on what you give to charity, assuming it comes from an IRA.

Unfortunately, I cannot do that, as I am not old enough yet.

The QCD is a generous tax break but its main limitation is that it's not inflation adjusted. For example: assuming 3% inflation the $100k limit will drop to ~$56k in today's dollars by 2041. This is why I expect that I will end up maxing out QCDs and donating via additional mechanisms after age 70.5.
You might consider leaving some of your Assets, when you pass, directly to a DAF. This works well if you have someone you can trust to manage the DAF and donations after you pass.

Another question to consider is how resilient is your retirement plan given your plans for donating to charities? I find this a difficult issue to wrestle with since I have only been retired 3 years and am a relatively young, 62. A lot can happen over the rest of my life and I want to make sure I have a reasonable balance between enjoying retirement, charitable donations and family gifting.

Anyway, great thread!

WoodSpinner
You can also set up most DAFs to be on auto-pilot after you pass. Basically set up a legacy distribution plan
Given the costs of setting up a trust, a DAF does seem like a good option for legacy distribution. Thanks for the comment.
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Tubes
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Re: Advice on retirement with high levels of charitable donations

Post by Tubes »

prioritarian wrote: Thu Oct 28, 2021 10:18 am

Given the costs of setting up a trust, a DAF does seem like a good option for legacy distribution. Thanks for the comment.
Yes. You are welcome. We currently have a good portion of our assets to be donated to our Vanguard DAF on our passing. From there, we've set up a recurring grant structure, sort of an endowment. (https://www.vanguardcharitable.org/givi ... y-planning)

The beauty of this is that changing the legacy plan is easy and doesn't require rewriting a will or trust. The danger of it is that it is doesn't feel as "legal" of having something written in a will or trust. Over the years we find that our desires change so the ability to easily change this legacy is important.

There's also the option of passing along the management to someone else, but we've decided that won't work and instead have initiated our own plan. These options are explained at the link above. Other DAFs have similar capabilities.
Topic Author
prioritarian
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Re: Advice on retirement with high levels of charitable donations

Post by prioritarian »

calwatch wrote: Wed Oct 27, 2021 4:03 pm If you are Ok with a minimum 10% being held in cash and 10% held in bonds, in lieu of a flat fee being deducted annually for DAF maintenance, then Daffy may be right for you as a low cost option. This is the similar model to Schwab with their automated portfolios having a portion in cash making negligible interest. Of course, when the market drops, then that cash will also not drop in value so it's not all bad.

They recently made a change to allow up to $25,000 in stocks per year to be able to be donated at their $3 a month contributor tier, in addition to unlimited cash and credit card donations. viewtopic.php?p=6263605
Thanks for the comment. I'm not OK with any cash when it comes to investments for charity because I have a higher risk tolerance for charitable investments than for retirement investments.
(I also hope that the creation of "Daffy" is sign that an ER-like DAF fee price war is developing.)
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