I am almost certainly an outlier here ...
My wife and I have tIRA of about $5.5M, and want to give it away to charity but have not decided when or where. I'm inclined to reach ordinary income of about $400k a year from combined SS benefits and tIRA withdrawal, and to donate $240k a year to a DAF (by first withdrawing, and turning the charitable donation into a 'cash' itemized donation). Doing so will incur DAF AUM fees over time that start at 0.6% and at higher tiers drop to 0.1%. My other choice is to wait for RMDs, and contribute 60% of each years's AGI to the DAF.
I saw in the 'Build' charitable giving section the ability to set giving amounts each year, but I would lie to input the equivalent of "60% of the AGI."
From my POV, paying AUM fees or paying taxes are about equally unattractive so I am trying to model which approach will have less over the retirement lifetime that I empty the tIRA
Thanks!
Eric
It's such an easy addition I suggestion doing a formal suggestion (feedback) within the program itself on the charity page.
Have you considered donating via QCDs spread out instead of DAF? Those have no AUMs because you donate directly to the charity.
I agree that something like this would be helpful - perhaps you should submit it as a feature request.
I'd be surprised if it's not more tax-efficient to wait until you're 70.5 and then make maximum QCDs each year, donate the residual RMDs as you describe, and then bequeath any remaining tax-deferred balance to the DAF (or other charity).
I'd be surprised if it's not more tax-efficient to wait until you're 70.5 and then make maximum QCDs each year, donate the residual RMDs as you describe, and then bequeath any remaining tax-deferred balance to the DAF (or other charity).
Hi David,
QCD would have less overhead for sure, but from my POV it has two disadvantages:
1. I am 67 and the QCD you are thinking of starts at age 70.5
2. A QCD cannot be 'stored' for later use. That is the chief reason to set up a DAF
Thanks to you and Jonathan for the idea to submit a feature request.
1. I am 67 and the QCD you are thinking of starts at age 70.5
We're doing something very similar to you and are donating appreciated assets from a taxable account to our DAF in this gap (rather than making cash donations of tax-deferred withdrawals).
Along the lines of Davids previous post, how would you model a DAF donation?
Along the lines of Davids previous post, how would you model a DAF donation?
It's just a regular charitable contribution. The fact that you direct how the money is invested and where it is eventually distributed is separate from your own finances, as it's no longer your money.
[As with other non-QCD donations, it is withdrawn based on your account withdrawal priority list; there's no way to specify a different source, or that it should be assets rather than cash.]
RE: the "When"...
I'd recommend reading / listening to Die With Zero by Bill Perkins.
I entered an enhancement Request for a Percent of RMD to be used for QCD several months ago. It makes modeling and analysis much more convenient than the current approach.
This is Stuart and I'd like to ask a couple of questions because I'm seeing multiple wish list items. One is for QCDs to be a % of AGI and another for QCDs to be a % of RMDs. Making QCDs a % of RMDs only works if RMDs have already started, so we'd need to define the fall-back method for sizing the QCDs in that case. AGIs can fluctuate quite a bit, so do we want the QCDs to fluctuate along with them? Undoubtedly, there are answers to these questions and ways of handling multiple options and they can all be accommodated in the Pralana code, but probably at the expense of a more complicated user interface. The current design leans toward the simpler UI but if we can come up with a better approach, we're open to seriously consider it.
Stuart
Hi Stuart,
As an example, this year I Roth converted $500k, and I donated $300k from my taxable account to a DAF. The numbers were connected, in that a donation of cash to a 501C charity may be treated as an itemized deduction, up to 60% of the AGI. Note that these donations are not QCDs, and they have a different tax treatment. It is typical that the qualified donation limit is a function of AGI
Where does RMD come into the picture ? I wanted to model a plan in which the AGI is the RMD and I maximized the qualified donation each year. More generally though, I think that being able to set the donation to a user defined percentage of AGI would have wide applicability.
IRS Pub 526 deals with charitable donations, and it is a huge topic. My request is within the scope of 'limits on donations', found at
https://www.irs.gov/publications/p526#en_US_2024_publink100015631
Thanks !!
This is Stuart and I'd like to ask a couple of questions because I'm seeing multiple wish list items. One is for QCDs to be a % of AGI and another for QCDs to be a % of RMDs. Making QCDs a % of RMDs only works if RMDs have already started, so we'd need to define the fall-back method for sizing the QCDs in that case. AGIs can fluctuate quite a bit, so do we want the QCDs to fluctuate along with them? Undoubtedly, there are answers to these questions and ways of handling multiple options and they can all be accommodated in the Pralana code, but probably at the expense of a more complicated user interface. The current design leans toward the simpler UI but if we can come up with a better approach, we're open to seriously consider it.
Just speaking for myself: We plan on having a fixed amount of QCD per year (after doing consumption smoothing comparisons) so fixed $s works best for us. "% of AGI" is not how we plan on giving (not that there's anything wrong with that method). "% of RMD" is intriguing because it might facilitate tax planning; but realistically, like roth conversions, things get readjusted every year, and you'd need to go outside of Pralana to figure the exact amount to maximize for "this year" anyway, so I doubt I would use it. Just one vote for maintaining $ entries. I'm interested to hear how others are allotting their QCDs.
I will make my request again regarding DAFs. I have a substantial amount of money in a DAF accumulated over years while I was working. We also have investments in taxable accounts and IRAs. We would like to have very little money left in anything at the end of the plan; there is no targeting of a legacy for distribution at end. Beyond actual essential expenses we have a fair amount of discretionary expenses, some just simple expense, and a fair amount is charitable donation. Charitable donations can come from both the DAF and from cash in taxable accounts. Of course, any distribution of money to a charitable organization from the DAF would not provide a tax deduction at the time of that distribution. When the DAF is depleted, we will want to maintain the 'same' level of dispersal of money to charitable organizations, but all would come from the taxable investment accounts.
What would be very valuable is to be able set an amount of distribution from the DAF each year until it is depleted, but have deductible donations from the investment accounts also occurring at the same time. When the DAF is depleted the amount that was set as annual DAF distribution then switches to coming from the investment accounts, and would increase the amount of actual tax deduction.
Although technically we no longer own the money in the DAF, we do have essentially complete control of how it is invested, how much is dispersed each year, and where it is dispersed to. Thus it is necessary to include this in our financial plan to provide a desired amount of support of charitable organizations each year throughout the plan.
This feature is important to us in creating a trustable plan.
Another 2 cents from the financial planning novice cheap seats on a somewhat tangential aspect - Some Users might benefit from “Optimize Charitable” relative to State and/or Federal Estate Taxation rules.
For instance, in NYS the Estate Tax is determined against a “Cliff” threshold. One dollar above the Cliff and the entire Estate value is taxed. Federal Estate Tax at rates between 18% to 40%.
Currently, one possible PRC workaround to get an idea of numbers around planning for Estate Taxation - Set Spending Strategy type Consumption Smoothing (Target Final Savings) or Actuarial (Legacy Amount) values to fall below taxation threshold. Where the strategy generated Expenses schedule can be used as Charitable Giving guide. Be aware, target values are entered in Today$ but End-of-Plan (EOP) Net Worth (NW) should be evaluated against threshold in Future$. Also note, PRC Withdrawal Priorities can have an impact on where the NW dollars reside at EOP.
An “Optimize Charitable” feature of PRC might include some sort of Spending Strategy “link” to Charitable QCD, DAF, other donation options for analysis, compare, optimize relative to Estate Taxation rules et al. Bonus goal - Compare between state residency. At least, perhaps a taxation threshold cross “warning” would be useful.
A working Plan might be Estate Tax exempt today but increase, or rules change, into the danger zone a few years down the road.
Anyhow, something for PRC, and Users, to think about. And as Charlie well knows - User imagining, submitting PRC ideas is the easy part and not always well thought through. Implementation MUCH harder with difficulty/risk/reward beyond my pay grade. Thus a Forum post for discussion.
