I often talk about how my family has shaped me into the man I am today.
One set of grandparents got me started on saving and understanding finances; they purchased mutual funds for me when I was young, and even got me a subscription to Kiplinger’s Personal Finance magazine.
My other grandparents taught me a lot a about being generous and the blessings of giving. They were always eager to help provide for the needs of others – whether it was family, someone in their church or a charity.
I think many people who have been blessed financially want to give, but they often don’t know how to go about it. And they’re right to be cautious: Some ways are certainly better than others.
With the stress of the holidays behind us, it’s actually a great time to put a gifting plan into action. Don’t rush into it, because it’s easy to make mistakes, and your best intentions can have unfortunate tax – and personal – consequences.
A qualified tax professional can advise you on the best methods for your situation. Here are a few strategies to consider when gifting:
- Take advantage of the annual gift tax exclusion. It allows you to give away up to $14,000 to as many people as you wish without those gifts counting against your $5.49 million lifetime exemption. If you’re married, you and your spouse can each give $14,000, or a combined $28,000, per recipient.
- Donate your required minimum distribution to charity. Taxpayers age 70½ and older can typically exclude what otherwise would be taxable distributions from an IRA if the money is paid directly to a charity. Qualified Charitable Distributions (QCD) must come from traditional or Roth IRAs (not a pension or 401(k) plan), and the charities must be 501(c)(3) organizations. The maximum QCD is $100,000; however, your spouse can also make a $100,000 gift if you file a joint income tax return.
- Transfer ownership of an investment. Gifting stock has become a popular way for many investors to be charitable to family or a favorite cause. Let’s say I held stock in an energy company for a long time. If I sold that appreciated stock myself, I’d have a huge tax bill. But if I gift it, I’ll likely get a deduction for the market value and can possibly avoid paying capital gains tax.
- Create a trust and fund it for your family or any number of charities. You’ll have the blessing of knowing these beloved beneficiaries will be taken care of, as well as how and when.
- Maximize giving by using life insurance policies. Charitable gifts from life insurance are usually thought of in the context of the charity receiving a future death benefit. But there are multiple ways to turn even a small premium into a substantial tax-free gift.
- Designate an individual, charity or trust as a beneficiary. This will help the recipient bypass any arguments about the gift and can avoid the delays (and costs) of probate court.
Clearly, all of these strategies require some thought and take proper planning to put into place. Make time now to work with a professional to maximize your gifting ability, and to make your gift tax-efficient for both you and the recipient.
Eric Mattinson is an Investment Adviser Representative and Insurance Professional with Semmax Financial Group Inc. He is a licensed insurance agent and has passed the Series 65 securities exam.
Kim Franke-Folstad contributed to this article.
Semmax and its agents and representatives are not licensed to offer tax or legal advice. Individuals should consult with a qualified professional before making any decision.
Advisory services offered through Semmax Financial Advisors, Inc. a Registered Investment Advisory firm. Registration does not imply a certain level of skill or training. Insurance products and services offered through Semmax, Inc. Tax services offered through Semmax Tax, Inc. Futures offered through Semmax Futures Fund, LLC.
Copyright 2017 The Kiplinger Washington Editors
This article was written by Rfc, Eric Mattinson, Investment Adviser Representative and Semmax Financial Group Inc. from Kiplinger and was legally licensed through the NewsCred publisher network.