| As 2022 is coming to a close it is the perfect time to re-evaluate your investment portfolio to ensure it is well-balanced and aligned with your long-term goals.
One strategy to consider is rather than a conventional portfolio rebalancing strategy of selling stocks and buying bonds, consider the strategy of transferring out-of-balance and highly appreciated investment holdings that are located within taxable (non-IRA) accounts to a donor-advised fund.
The benefit of this strategy is that you get a tax deduction for the full fair market value of the transferred assets at the time of the gift. And, with a donor-advised fund, you can recommend grants to your favorite charities over several years, or even in perpetuity. Plus, the dollars can be reinvested prudently for long-term growth in a tax-exempt charitable account, enabling the contribution to be leveraged into a significant and lasting impact. This strategy has the dual advantage of allowing some of the recent stock market gains to be taken off the table for the benefit of charities while mitigating and shielding taxes.
To illustrate, suppose you have unrealized gains on stock or mutual fund holdings in an individual, or joint investment account, a transfer on death (TOD) or a trust. You can gift appreciated shares or units directly to a donor-advised fund. Assuming $50,000 of unrealized gains out of a $100,000 donor-advised fund contribution, and a 29% total capital gains tax rate (federal, state, investment income tax), approximately $14,500 could be saved versus an ordinary rebalance.
Additionally, taxpayers that typically claim the standard deduction may want to consider funding a donor-advised fund with several years’ worth of planned charitable gifts into a single tax year. This “bunching” strategy can enable taxpayers to increase their itemized deductions above the standard deduction amount, thus enabling them to shield taxes in addition to helping their favorite charities.
The Community Foundation stands ready to help you support the charities you care about. Together, we can make a strategic plan that aligns with a variety of charitable giving goals, including establishing donor-advised funds. Reach out to start the conversation! |
