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Many people believe in giving back, but under the new tax laws, it may not be as tax advantageous as it used to be. With the steady appreciation in the stock market – the longest bull run in history – some folks have achieved a level of wealth they never imagined. Our Charitable Strategies work is focused on smarter, tax-efficient ways to help people give back a bit of that wealth to various philanthropic causes. But we are often surprised to find even large, well-established, donors who are still not familiar with the benefits of donating appreciated stock and how to use Donor Advised Funds (DAFs).

Donating Appreciated Stock

The advantage of giving away an appreciated asset is that you will never have to pay the capital gains tax on that asset. For example: if I bought Amazon stock for 10k and it is now worth 100k, when I sell it, I would have to pay capital gains tax on the $90k of appreciation—which would leave me with $78,500 after tax.* If I donated those shares of stock directly to a charity or DAF, I get the full deduction for a $100k gift and don’t pay any taxes.

Why Use a DAF vs. Donating Stock Directly?

Donors often want to give a specific amount to the charities of their choice. When donating shares of stock, the asset will be liquidated by the charity for whatever value they held upon moment of sale. If stock prices fluctuate, your charitable gift could end up being more or less than what you intended to give. Also, some smaller charities aren’t set up to accept direct stock donations, limiting the list of recipients you’d like to support.

A Donor Advised Fund works as a charitable investment account for the purpose of transferring donations to organizations that you designate. When you gift appreciated stock to a DAF, you are eligible to receive an immediate tax deduction for the full value of the stock in the tax year you donate, and the DAF can invest those funds for tax-free growth and send a check to the charity/charities of your choice for the amount suggested.

You also gain the benefit of not having to distribute the full value of your donation to charities that year. Your stock can remain invested within the DAF and continue to grow for charitable designations in the future. This allows for a larger single deduction for tax purposes, which works well under the new tax laws.

Why Do an Audit?

For charities that are looking to raise more money, a review of major cash donations from large donors and active board members can be a valuable step. Many such donors could benefit from an introduction to the increased value of donating appreciated assets or using a DAF. If more active donors understand the advantages of donating stock and other appreciated assets, they can give more away for the same cost and potentially experience a more efficient tax process.

Caveats and the Bottom Line

DAFs have come under some heightened scrutiny of late, as they are not legally bound to spend the donated money they receive, and donors technically cede legal control of their contributions to the DAF sponsor. DAF fee structures and unexpected sponsor beneficiaries have also been questioned in some cases—so it should go without saying that not all DAFs are created equally, and consulting with your financial advisor before making any decisions is important.

For investors with a focus on philanthropy and for not-for-profits looking to maximize the way they receive funding, DAFs offer a streamlined and tax-friendly means of giving and getting donations. DAFs have almost doubled the amount of money that they have paid out since 2010, and the use of these vehicles to convey assets to philanthropic causes is growing rapidly.  

A Final Thought

BTW: if you really wanted to continue to own that stock in Amazon, you could take the cash you had intended to gift to a charity and repurchase shares of stock at the current price and now have a higher basis in that stock for the future.

I hope you found this helpful.  If you have any questions on your charitable giving, please give us a call.

*Assumes a 25% capital gains rate.

How Will the SECURE Act Change the Way You Plan for Retirement?

/// Posted by Rob Simons

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On December 20th, 2019, new legislation was signed into law as part of a larger government spending package that promises to have wide ranging and lasting effect on saving for retirement. Called the Setting Every Community Up for Retirement Enhancement (SECURE) Act, the legislation includes many long-sought common-sense reforms that could make retirement saving both easier and more attainable for many Americans.

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Rob Simons, Senior Retirement Consultant at Sapers & Wallack, answers questions about our February blog, How Will the SECURE Act Change the Way You Plan for Retirement? 

Student Loan Repayment as Employee Benefit

/// Posted by Hilb Group of New England

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According to recent statistics, there are now more than 44 million unique borrowers who collectively owe $1.6 trillion in student loan debt—making student loans the second largest consumer debt category after mortgages. Those are staggering numbers.

For the considerable Millennials and massive Gen Z workforce to follow, student loan debt is a primary economic concern, often before mortgages and retirement savings can even be considered. Smart businesses have taken notice in a growing trend toward creating student loan repayment assistance programs as a necessary company benefit to attract and retain younger talent.  

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Podcast Q&A: Student Loan Repayment as Employee Benefit

/// Posted by Paula Drozdal Connors

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Paula Drozdal Connors, Senior Vice President, Sapers & Wallack The Hilb Group of New England, answers questions about our January blog: Student Loan Repayment as Employee Benefit.

 

Do You Know Where Your Money is And What it is Doing?

/// Posted by Wealth Management Team

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As 2019 closes and a new year starts with a fair amount of uncertainty, it is a good idea to take stock of your financial situation. While markets have been going strong and the economy seems largely sound, upheaval in both domestic and world politics, an increasingly fragile interaction with the environment, and uncertainty in global trade policies will continue throughout the immediate future. We’d like to ask all of our clients, both individual and as part of an organization—how is your money working for you and do you have a cohesive plan to maintain and grow your wealth?

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Mega Backdoor Roth Conversion Primer

/// Posted by Rob Simons

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Background

There is growing interest in a design strategy known as the Mega Backdoor Roth Conversion (the Conversion). The Conversion allows 401(k) or 403(b) Plan participants who are already deferring the maximum allowed to contribute After-Tax funds to the plan. The participant may then convert the money from After-Tax funds to Designated Roth funds. This two-step process has the effect of allowing plan participants to contribute additional Roth money to the plan and shelter the gains from taxes.

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Podcast Q&A: Mega Backdoor Roth Conversion Primer

/// Posted by Rob Simons

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Rob Simons, Senior Retirement Consultant at Sapers & Wallack, answers questions about our November blog ‘Mega Backdoor Roth Conversion Primer‘.

/// Posted byAviva Sapers & Peter Stoner

Whether your 65th birthday is fast approaching or decades away, it pays to understand the basics of how Medicare works and what it does and does not cover—and then plan accordingly for any additional coverage that you may need in retirement.

Enrolling in Medicare can be more complicated and frustrating than many might expect, and the rules and regulations are changing.

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Aviva Sapers, President and CEO of Sapers & Wallack, and Peter Stoner, President and CEO of Stoner & Company, answer questions about our October blog ‘Medicare Coverage: What to expect, how to enroll, and will you need supplemental plans for retirement’.