How do I make charitable donations from my 401(k)?
Direct donations from a 401(k) to charity on a tax favored basis are not possible. However, direct donations to charities from IRAs, called Qualified Charitable Distributions, are permitted. There are a few requirements to make those donations completely tax-free, chief among them is you must be 70½ years old at the time of the donation.
If you want to make a QCD but do not have an IRA, you will first need to get money into an IRA. The most common methods are to transfer retirement accounts from a former employer to an IRA or, if allowed by your current plan, perform an in-service distribution and transfer some of your active 401(k) funds to an IRA account. Your plan’s Summary Plan Description will say if in-service distributions are permitted.
Once funds are in an IRA there are a few requirements to get the tax break:
- You can donate to as many charities as you like as often as you like up to a total of $100,000 per taxpayer, per year. With planning, a couple can donate up to $200,000 in a tax year.
- The checks must be made payable to the charities.
- The charities must be 501(c)3 public charities.
- You must be at least 70½ years old at the time of the donation.
- If you have made deductible contributions to the IRA since turning 70½, those contributions will cause the donations to be taxed until all of those post 70½ contributions have come out of the account.
Facilitating a QCD is fairly simple: request a distribution form from the provider holding your IRA. Most IRA providers will give you the option to have the check mailed to the charity or to you, so that you can present the check in a more personal manner. Remember, regardless of where the check is mailed, the check should be made payable to the charity, not to you.
Alternatively, many IRA providers will provide a checkbook on the IRA for QCD purposes. Just make sure the charity cashes the check before December 31, so the donation is properly included on the 1099-R the provider will issue.
We continue to help various media outlets provide sound information to their audiences. (Some links may require a subscription to view.)
Charlie Fitzgerald, CFP®, Derrick Chandler, CFP®, Tommy Lucas, CFP® and Casandra Garrett, CFP® participated in a call-in event on October 16 for the Orlando Sentinel. The Sentinel has highlighted several of their responses in its “Ask An Expert” feature.
Derrick Chandler, CFP® outlined some pros and cons of balance transfer offers from credit card companies while Tommy Lucas, CFP® suggested a reader consider a Roth conversion. Mike Salmon, CFP®, Charlie Fitzgerald, CFP®, and Casandra Garrett, CFP® chimed in on the maximum 401(k) contributions for 2022, the new law this year requiring all Florida high school students to take a semester course in personal financial literacy, and one option for handling money paid to a 12-year old injured in an auto accident.
DJ Hunt, CFP® writes a periodic column for Rethinking65 a retirement planning focused site for advisors. He recently produced a three part video series on Roth accounts. Part 1 is below. You can view Part 2 and Part 3 on the Rethinking65 site as well as DJ’s author page.
In the News…
Mike Salmon, CFP® was tapped for his thoughts on financial literacy for a Capital Analytics piece, “Tampa Bay’s top financial advisors weigh in on literacy, education and more.” In October, while attending the annual conference of the Association of African American Financial Advisors, Dan Moisand,CFP® and some colleagues spoke to students at Clark Atlanta University about the opportunities for careers in the financial planning profession. The following week, Dan was in Denver for the Fall conference of the National Association of Personal Financial Advisors where he presented a number of challenging situations he has faced in his career.
If you are a member of an organization in need of a personal finance speaker, we are happy to talk with your group’s organizers about helping out at no cost.
CNBC reporters rely on us for many of their stories. Charlie Fitzgerald, CFP® was tapped for a story on corporate earnings reports. After the reporter noted that mutual fund investors are insulated from any one company’s earnings, Charlie noted, “It’s interesting to know what’s going on, but [a quarterly earnings report] isn’t something that should push you to suddenly change your philosophy or approach.
Tommy Lucas, CFP®, EA contributed his answers to the following questions: Do you make too much for student loan forgiveness? Here’s what to know, Here’s how much you can earn and still pay 0% capital gains taxes in 2023, Here’s what to know about year-end mutual fund distributions for 2022, and IRS interest jumps on Oct. 1. How much you’ll get for a missing refund? Tommy also contributed to a MarketWatch piece and had suggestions on things people can do to weather a recession.
DJ Hunt, CFP® added his thoughts to an Investment News article, Student debt relief lets clients use their money more productively.
Things We Found of Note
77 years Average life expectancy in the United States. (CDC)
$30 trillion Anticipated wealth transfer from baby boomers to younger generations in upcoming years. (Forbes)
33% Percentage of Americans that have a will currently. (Caring.com)
64% Percentage of American adults that have never discussed their estate plans with their adviser. (Edward Jones)
Moisand Fitzgerald Tamayo, LLC is an Orlando, Tampa and Melbourne, Florida based fee-only financial planner serving central Florida and clients across the country. Moisand Fitzgerald Tamayo, LLC specializes in providing objective financial planning, retirement planning, and investment management to help clients build, manage, grow, and protect their assets through all phases of one’s life and the many transitions in between. If you have any questions or would like to discuss anything further, please give us a call or send us a note. If you are not a client and wish to receive emails notifying you of new posts – no more than once per month – fill out the subscription information in the sidebar to the right. For more frequent updates, follow us on Facebook, LinkedIn, or Twitter.
Important Additional Information & Disclosures
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Moisand Fitzgerald Tamayo, LLC-“MFT”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from MFT.
Please remember that if you are a MFT client, it remains your responsibility to advise MFT, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MFT is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. Tax advice is given only to clients and only when agreed to by MFT. A copy of the MFT’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request.
Please Note: MFT does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MFT’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Note: Limitations: While MFT does NOT pay for recognition, awards, or publicity, neither rankings and/or recognition by unaffiliated rating services, publications, or other organizations, nor the achievement of any designation or certification, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if MFT is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers. No ranking or recognition should be construed as a current or past endorsement of MFT by any of its clients. ANY QUESTIONS: MFT’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including providing the criteria used for any reflected ranking.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your MFT account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your MFT accounts; and, (3) a description of each comparative benchmark/index is available upon request.