It’s the season of giving, but are you giving in the most impactful and tax-efficient way? In this episode of the Wise Money Show, we break down smart charitable giving strategies that help you support the causes you care about while reducing your taxes before year-end. From donor-advised funds and qualified charitable distributions (QCDs) to gifting appreciated investments and maximizing state tax credits, we walk through the tools every generous giver should know. Make your giving count, for both your heart and your financial plan.
Season 11, Episode 15
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Transcript:
It’s time for Wise Money with Korhorn Financial Group with certified financial planners Kevin Korhorn, Mike Bernard, and Josh Gregory.
Segment 1: Welcome to another episode of the Wise Money Show with Korhorn Financial Group, where every week we’re helping you take your next wise step in your financial life. Thanks for being here, friends. My name is Mike Bernard. I am your host. I’m also one of the certified financial planners on the program. And with me in the KFG studio is my business partners and fellow CFPs, Kevin Korhorn and Josh Gregory. Well, it’s the Thanksgiving season and your heart may be turning towards gratitude and generosity, but have you thought about the most effective ways to be generous? This week on the Wise Money Show, we’re covering wise giving strategies that can help you support the causes you care about and reduce your taxes before your end. We’ll help you make the most of your generosity in today’s episode. I’m not ready. Not I’m not ready. I’m not ready for all this the holiday season. I look forward to it. And for whatever reason, I think it’s just I’m that age where I want to complain about how much everything costs and I also am constantly commenting about where’d this year go? I can’t believe it’s this season, but I am not I’m not ready. That is funny. I have found myself saying that, too. And normally by Thanksgiving, I’m like, I’m done. You Josh, you know this. I’m like, I’m done with all my Christmas shopping. It’s already done. Like, I’m ready to enjoy. No, no, no. All right. There we go. If you have a question for the program, we’d love to hear from you. You can call or text us 574222000. That’s 574222000 online. WiseMoneyShow.com is where you can find us. Leave questions there as well. And then all over social media, wherever you’re at, we are there as well. Search the Wise Money Show. You’re right, Josh. It’s the season of giving. And how can you turn your giving from impulse to impact? From impulse to impact. and have a giving strategy that connects both your motivation to being a good steward of your financial resources. I got to confess again, I’m old now, but when I was younger, um I would like to give and but spontaneous. And then I also I’m just going to say this. I I would hesitate to think about how it could benefit my taxes because I was I was nervous about my internal motivations. Am I doing this because I’m trying to get something? No, I’m not. I’m doing it because I want to be generous. I want to support. and therefore I’m gonna be completely ignorant to how it could benefit me and my taxes. And as I’ve grown older, I’ve gotten greedier. No, I’m just kidding. As I’ve grown older, the idea of being a good steward and and maybe it is connected to how the government is spending money and saying, “Ah, nope. I’m going to I don’t want to pay more taxes than I need to.” I don’t know what it is, but it’s it’s resonated more over the past decade or more that no be aware. A tax reason isn’t the reason to give, but if you’re giving, be aware of the tax benefits. Yeah. Hey, you know, if you have given the right time and attention to, all right, what are the missions out there, the the causes that I care the most about, and I’m going to concentrate my giving in those areas that I want to be fully behind as opposed to just, hey, this person asked, so I didn’t want to say no. I didn’t want to be look like I’m stingy and so I just gave a couple bucks or whatever. What what if all those couple of bucks got concentrated in the things that you were actually passionate about and that was your motivation for giving and then with with the right target in mind, what if you and your certified financial planner had a conversation about now what’s the best method to give so that you get the most bang for the buck from a tax standpoint. That’s right. That’s right. So, this is interesting. So, we’re going to talk about different strategies for giving and get into commonly asked questions, but also just some confusing strategies that you might need to take advantage of. But, you know, the the entire Wise Money Show is about comprehensive financial planning that everyone, you, me, everyone else has six different areas of our financial life. And it’s not that these so that’s but that’s not the big secret. It’s sort of the epiphany. Hey, that yeah, there’s six areas. The secret is that they’re all connected. They’re all connected. And giving and having a giving strategy really illustrates that point because the way I count Kevin and you can share the six areas. It’s going to t a giving strategy is going to touch five at least five. Yeah, I’m going to say it’s going to touch all six. So you start with your present financial position and that is I have a a an income statement or basically a budget where where’s the income that’s coming in where is it going and then I have a net worth statement. So I take what I own minus what I owe and that’s my net worth. And really what I want to do by measuring these things and tracking them I really want to identify trends and see what is happening in my financial life. So, we do and you could throw the the B- word in there and say, “Yeah, I want to have a budget.” And there are lots of different approaches to having a budget, but you definitely want to be it’s it’s part of managing your cash flow. And that is instructive. Why why does that why does that area of your financial life matter to the other areas? Because that tells that might give me a good indication. Hey, what’s my burn rate right now? I have X coming in. I’m spending Y. What is the delta there? And what then therefore might I need in retirement? And so it it or what other if I’ve got extra then I can increase my savings. Well, where would I increase my savings? And there’s all different types of places that I I might even increase my giving as we’re talking about. So, but I need to know objectively that I’m not robbing Peter to pay the eventual Paul. So, if I’m if I’m doing something, and we talked a little bit about that, the the the short-term, hey, I need to deal with the short-term pain so that the gain is long-term. And a lot of times we’re tempted to say, I want short-term gain, and that creates long-term pain. So if you’re if you can be objective and run the miles and do the discipline, your present financial position is definitely the most important area of the six areas of your financial life. Well, from a giving standpoint though, I honestly like I think back on my career and whenever the topic of giving or being generous has come up, if there’s ever any kind of regret attached to it, it’s usually, man, I I want to be able to give more, but I don’t feel like I can. Yep. And that’s usually some sort of a statement about I am constrained somewhere in my cash flow or um I I feel like I’ve got all these obligations and there’s not as much left over at the end that I would want to be able to give with and then they’re just forced to decide, okay, am I going to save? Am I going to pay down debt? Am I going to give? What what is it? And when you get into these either or and it’s frustrating to you, that’s often a sign that maybe there’s still some more work that could be done in your present financial position. Right. And Josh, you’re talking about goal achievement and do I achieve my goals sequentially or do I do it um do I achieve each of them simultaneously? Yeah. And so this is where some of these decisions need to be made, but you you’re saying I don’t feel like I can give. Well, this is the problem. You have to get it out of the feeling real realm or the subjective realm into the objective realm because the other thing is and this is tied to one of the other areas which is retirement planning. Um I want to know that my long-term bills are paid. So if I’m giving away money today that I’m really going to need 40 years from now to pay the bills, I probably shouldn’t be doing that. Mhm. So this is this is where I you can know if you’re curious and you want financial peace, you can know how to have the right balance. Well, and that’s only one of the six areas of financial planning, your present financial position. The one that most people’s minds go to is tax planning. You know, is there a tax deduction? How do I do this tax efficiently? We even kind of um almost indicated that that’s part of the the show today that how do you do this um from a tax efficient standpoint? Um and there are some cool tools. There are some better ways maybe to do your giving if you take a tax planning approach. Are you really going to go out of order with these six areas? Are you going to be able to pull out protection planning? No, no, no. You said all six and I was like, man, I don’t know about that. No, no, no, no. But okay, so just on on tax planning, think optimize like is there a better way to do what I’m trying to do? And most people if you don’t give your life to studying such things, you’re not going to know. Yeah. So a and I I’ve said this 72 times. Here’s the 73rd time. When I meet with a new prospective client and I say, “Who helps you with your tax planning?” They say, “No one.” And so you say well the do you get any well yeah I have a tax preparer tax preparation is very different than tax planning. Mhm. Yeah. So, present financial position of course cash flow and all that. Certainly giving is connected there. Tax planning we’ve talked about. You touched on retirement planning. Certainly touches on investment planning as well. We’re going to talk about that. That uh in just a minute. You know, you’ve heard the phrase cash is king. And now when it comes to giving actually investments are often a better way of giving than than cash. Uh and then estate planning as well. Is your giving strategy connected with your eventual estate plan or your intentions and and plans uh throughout your life? Like how is your giving plan connected to your estate plan? That’s five of the six. I’m not sure about protection plan. We’re going to pick that back up and then get into different creative strategies to help with your giving here in the year end. So, we’ve got that more coming up on the Wise Money Show with Korhorn Financial Group.
Break 1: Hello YouTube. Thanks for being here. This is the Wise Money Show. What you’re watching right now is our weekly 1hour talk show that airs right here on this channel 10:00 a.m. Eastern time every Saturday morning and also on podcast at the same time and also on a couple local radio stations at the same time which is why the content’s broken up the way that it is. We’ve got segments and so on. But make sure you hit that subscribe button, turn on notifications so you’re made aware every time we drop new content. Lots of content here on the channel. Well over 2,000 videos or close to 2,000 videos. If you are struggling with a financial concept or have some financial questions, odds are we’ve created helpful content for you right here. So, hit that subscribe button, turn on notifications. We appreciate it. All right. I was going to keep running. I was gonna I think I was going to take four segments to get through. I was actually going to say we we are on pace for four segments of just that. And I I don’t there would have been bait and switch on what we’re trying to talk about. That’s all right. Uh, all I want to do is go sequentially around the circle and I I didn’t have a reg a ready answer for how protection planning fits, but I do have one. Now, uh, to me, if you use life insurance to replace maybe uh, if you if you set up retirement account, that’s good. That’s good. Let’s hit that. We’ll So, we’ll skip bonus content this one. We’ll hit that and then we’ll get into uh, the cash is king.
Segment 2: When you think giving, are you thinking of giving out of your cash flow or giving out of your investments? Uh, most people think cash flow. I’ll show you. We’re going to show you a few reasons why you might want to think investments first. This is Wise Money Show with Korhorn Financial Group. Thanks for being with us. My name is Mike Bernard here with me in the KF2 studios. Kevin Korhorn and Josh Gregory. Stay up to date on all wise money content. Find us online WiseMoneyShow.com and then well, wherever you’re at, we are there as well on social media. Just search the Wise Money Show. All right. So, yes, giving strategy. We’re talking about that. It is the season. And before we get into some creative strategies, it’s really your giving. It really illustrates that all six areas of your financial life need to be working in concert. They need to be uh there needs to be synergy. And the challenge was laid. How many of the six areas of your financial life does your giving strategy connect with? And and I saw five clear ways. Kevin said, “No, there’s six. I was in the five camp and now I think I’m in the six. Tell us. And it’s just an example though of where things like So, so protection planning was the one that we weren’t real sure how obvious that was that it would connect to your giving. But an example might be um if you had some giving that you wanted to do at the end of your lifetime and you were going to leave behind maybe an IRA or a 401k or something that has not been taxed yet and you want to leave it to a charitable organization. The power of doing that is maybe throughout your entire lifetime you avoided paying taxes on the contribution on all of the growth and accumulation and you would have paid tax on it if you had taken it out and spent it. But what if you leave it to a charity behind? You never touch those dollars. They receive it and pay tax at their rate, which is probably zero if it’s a true charity, right? And so the Uncle Sam al ultimately gets disinherited in that game plan. Well, what about your beneficiaries? What about those that you you care about, the individuals in your life, family members? Sometimes people will use products like life insurance as a tool to replace what otherwise would have been in their estate. a gift or a financial legacy that was going to be left behind. You’re just giving it to them in the form of life insurance instead of a retirement account. And the power there is life insurance comes to them tax-free. Yeah. And and so life insurance is a tool. And what you’re referring to is permanent life insurance. And permanent life insurance is a tool that you can actually get some financial leverage with. And depending on your situation where your net worth is, which is why it’s important to know your net worth. If you’re north of 28 million, you probably want that life the life insurance proceeds to be outside of your estate. So they’re not included in your estate. That’s an irrevocable life insurance trust. Um, and so this is where the planning piece comes in because this is not a lot of times when people think, well, life insurance that’s covering me, uh, that’s funding unfunded goals at my death or providing for survivor income. No, this is providing for estate planning. I would have attributed the phrase cash is king to Dave Ramsey. Just looked it up and the Google says Pier G. Gillanhammer, CEO of Volvo, said cash is king as they were navigating the 1987 stock market crash. But there’s also a reference to cash is king or the importance of having cash over credit in a book that was published in the 1890s. So, it’s not Dave Ramsey. I have no idea what uh but but in your present financial position or if you’re running a business or whatever, cash is king. That’s the financial mo around your uh your financial house. And Kevin, you’re exactly right that uh helps manage risk and and so on. When it comes to giving though, I often think cash and often you’re going to have your giving set up as a monthly contribution or automatic transfer, automatic payment to to a charity. However, when it comes to giving, I would I would want you to think strategically about giving investments before giving cash. Guys, why is that? and start getting into some of the strategies there. Well, one of the benefits of giving investments and think specifically individual stocks, individual stocks that you own outside of a retirement account, so I own them individually or jointly with my spouse, those those appreciated individual stocks, if I give that if I bought Microsoft, if I bought $50,000 of Microsoft and it doubled, now it’s worth a hundred. If I sell that, I’m going to pay capital gain tax on my capital gains and I’ll have $50,000 of capital gains. Mhm. If I gift that $100,000 to And it used to be you would gift it to a charity and it was an absolute goat rodeo. I mean, it was terrible. And and fun. Yeah. So now I I gift that 100,000 to my donor advised fund. Yeah. Talk about that here in just a second. and I sell it inside the donor advised fund. And a lot of times when we bring the strategy to clients, they’re like, “Oh, no, no, no. My Microsoft stock is my prized possession. There’s nothing in this world I value more than that stock.” So, it’s okay. It’s okay. Take that 100 grand of cash you have over there that you were going to donate to the charity anyway and buy Microsoft stock. Now, your basis in your Microsoft is not 50, it’s 100, right? So, you’re still going to uh end up with the same amount of Microsoft stock, but you have neutralized the tax because you’re letting the charity uh take the tax hit of zero for them. It’s pretty powerful. It can be also giving investments can be beneficial if you’re giving to a family member, which is not taxdeductible by the way. If you’re giving if you’re making a financial gift, you want to bless the next generation or maybe two generations down. And um and you might say, “Well, it’s this time of year. Uh you know, we’re financially able to write a sizable check. Let’s do that.” Um if you’ve got some investments that have grown and appreciated and are have a large capital gain, you could give some of the shares of that stock to that next generation or two generations down. When you do, you’re giving your cost basis as well. So you’re not erasing that taxable capital gain, but you are changing who pays the capital gain tax. Yeah. And if that grandchild or child is in the 10 or 12% tax bracket, they could sell and those capital gains would be taxed at 0%. So you guys, I’m going to take a quick tangent. Do you know that what I just glossed over there has been the case for a long long long long time. But starting in 2026, there is a slight gap between the capital gains rate of 0% and the 12% tax bracket. Meaning, you could be a little bit in the 12% tax bracket and have your capital gains not be taxed at 0%. I’m assuming someone in Congress made an error. It’s a typo somewhere. Wait, wait, wait. Are you saying 12 or 22? 12%. You can be in a little bit into the 12% tax bracket and not be in the 0% capital gains tax bracket. They do not align this year. They’re off by just about 1,900 bucks or a couple thousand. The higher it it is bizarre. Have no idea what in the world they were thinking. Yep. So anyway, so consider giving stock. Now, uh, a caveat that was mentioned right at the beginning was this is this is stock outside of your IRA. If you give your IRA directly to the charity or something like that, thinking, well, I’ve got appreciation here. You’ve got to be make sure that you’re over age 70 and a half, uh, so, uh, qualified charitable distribution. We’ll get into that in just a second. And if you’re giving the investments within your IRA to your kids, that’s going to be a distribution. That’s going to be a withdrawal. So, this would be dollars outside of your tax shelters. What are some other considerations when it comes to giving investments instead of instead of uh cash? Uh we already mentioned it doesn’t change the cost basis. Um Kevin, what are your thoughts? We’re about to get into the donor advice fund explaining what that is. Does it make sense when you’re giving investments to have your donor adise fund at the same investment company as where your where your nonirra is? So say you’ve got a joint account. Is it easier to have that donor adise fund at the same company, the same custodian? 100%. Yeah. It to me there’s just because you can do something doesn’t mean you should. And I’ve been trying to explain that to my kids since they were born. But if you can do it financially, because I we’ve seen lots of folks who have created financial complexity be and it’s of course that happens because as you move through life, your financial situation changes and you say, “Oh, well now my life’s different and so I will do this thing.” And if you’re not looking to create congruence in your financial life, you can create such amazing complexity that no one can figure it out. And it’s not a problem if you can, especially when you’re alive. But when you’re gone, man, what a problem that can create. Donor advice fund. I’m going to say for the for the most part, the juice is worth the squeeze. So it it is it does going to it is going to add a little bit of complexity, but it’s also going to create a lot of simplicity as well. But we’re going to explain what the donor adise fund is, why maybe you should consider it, and then put Kevin and Josh on the spot and say, well, at this late hour or late time of the year, is there still enough time to open a donor advised fund for this year and fund it here in 2025? So, we’ve got that more coming up on the Wise Money Show with Korhorn Financial Group.
Break 2: All right. This is not bonus content, but I saw the look in your eyes. Yeah, dude. That didn’t cuz you said if you’re just into the 12% tax bracket, you Oh, did I say just into it? Yeah. Yeah. So, it made it sound like on the front end. No, it’s on the back end as opposed to on the back end. So, okay. So, here. So, here. Come here. So, so you could actually be spilling into the 22. So, for 2026 married filing jointly, the top of the 12% tax bracket is 100,800. Okay. Scroll down to the capital gains tax brackets. The top of the 0% tax bracket for capital gains married finally jointly is 98,900. So if you said I’m going to fill up the 12% bracket, there’s a a fuzz at the top that you can’t do. and it’s so small, is it really going to impact a lot of people? No, not really. And we’re talking pennies on the dollar. It’s not going to be a ton. However, if it’s so small, why? Yeah. Why, Congress? Why didn’t you align it? Here’s my question. Is that has the lovely and gracious Lindsay reflected that in our She will because we’re talking about 2026. These This is 2025. what you’re looking at. I thought we were going to put multi-year capital gains rates in here. Okay. Uh you have to assume that would get fixed though. I know. So the gap is at the top of the 12% tax bracket. Yeah. And there’s a little bit of oxygen in there that you need to prepare for. Or maybe there’s a little bit of water that you don’t want to get up your nose there. There’s some analogy that something is happening. Yeah. Something’s going on. Okay. What’s next? Do a bonus content or we’ve already Let’s keep rolling. Let’s go. So, where are we? We are explaining donor advice fund and then QCD third going into the third segment. Yep. Okay, here we go.
Segment 3: If you should consider using a donor advised fund as part of your giving strategy and it makes sense as part of your 2025 tax planning, is it too late or do you still have enough time to open a donor advised fund, get it funded, and should you do it? We’re helping with that right now. This is the Wise Money Show with Korhorn Financial Group. Thanks for being here. My name is Mike Bernard with me in the KFG studios. Kevin Korhorn and Josh Gregory. Every episode of the Wise Money Shows on podcast. Wherever you listen, search the Wise Money Show. Subscribe to it there. Rate the program there as well. We appreciate it. Kevin, donor advised fund. Yep. What is it? How does it work? And then we’ll lead into Is there enough time? So, a donor advised fund is a tool that I can put money into. And the day that I put the money into the fund is when it counts for my charitable deduction. Yeah. So on my schedule A. So if I put the money in December 31st, I get a charitable deduction this year. It doesn’t have to leave the fund this year. It can leave the fund whenever. It can leave the fund 10 years from now. I can leave it in there and invest it. Most people when you think about your when you think about your financial life, you say, “Well, I need an operating system for my financial life.” That’s true, but really your financial life is a system of operating systems. So, if you’re charitably inclined and you say, “Well, uh, on an annual basis, I typically give to my church. I typically give to the food shelter, the um any you name it, the the humane society, whatever you like to give money to. If there’s a charitable deduction, you need to understand the donor advised fund because if you make that part of your financial operating system, not only are you simplifying your life, but you are simplifying the life for the charity that you’re donating to. So it it really and I dream about a day that the only way people give money is through a donor advised fund because you say well what if I don’t itemize it still saves considerable administration at the 501c3 that I’m giving to explain why because it the and and so I’ve given to some organizations and they say and and so basically what happens mine is at fid Fidelity. So, Fidelity Charitable said, “I I make a request or I I want this grant.” And then they have to approve the grant to make sure it where it’s going to is a legitimate not for-profit organization and not, you know, my buddy’s business who’s a not for profofit or one of my kids. So, it has to be a legitimate 501c3. And so, they do the the kind of the the background check due diligence to make sure it’s legit. And then they’ll send a check. Well, a check comes if you’re if if you’re the church, the check comes to in the mail. The receptionist gets it. They open it up. They log the check the and and there’s all this administrative stuff. I reach out to the organization that I’m giving to if they don’t have an an EFT link set up and I say, “Hey, set up an EFT link with Fidelity.” And Fidelity makes it easy. They have the instructions on there for the organization. So then they do it and then the money goes directly into the organization’s bank account. Yeah. And the and one of the things that I like about that is if you are a giver and you want total anonymity. So you say, I’m giving to this organization and I don’t want my left hand to know what my right hand is doing or I don’t want the people there to be able to connect me with this contribution. This is the way that when I put the money in the donor adise fund, I get the the the tax deduction. I get the benefit of giving the money, but then I can give it completely anonymously. You don’t have to. You have the choice when you’re giving the money. But there are so many great features of this. I I think um you know they used to call the Roth IRA the 24 karat gold Cadillac. Like as an old guy, this would be the 24 karat gold Cadillac. I mean it’s just it’s beautiful. And it’s a way for, you know, the common man. You don’t have to be a billionaire to set up your own foundation essentially. You know, a lot of these huge philanthropists, they’ll take massive amounts of wealth, set it aside into its own entity, a foundation, and that foundation then gives to charitable causes and whatever it wants to support. You you might live in a community where the the county has its own foundation and you can gift stock or gift money to it and then it is supporting some great endeavors within your your community. You can do the same thing with a donor advised fund. Absolutely. you’re gifting to this uh this pool that then can uh reward or award gifts then to your favorite church, your favorite school, uh your favorite missions organization, all of that. And to your point, Kevin, it doesn’t have to have your name on a big banner or a bunch of marketing material showing what uh your foundation has done because this that’s not the purpose of this. I thought you were going to also mention Kevin a benefit for the giver that you’ve shared in the past and that is if you are giving to the church and as well as the you know the blood foundation and uh and the humane society all that sort of stuff. Well, one of them sends you a giving statement in the mail. The other one sends it to you via email. The other one sends it to your spouse because they were the ones that write the check. And the other one said you got to log into their online portal and download it. And inevitably, you’re going to miss one or most of those on your taxes. No doubt. If you are having all of your donations go into your donor advised fund and then you distribute from there to the four or five or six causes you care about, what do you need from an administrative standpoint for your taxes? Just the one just the one statement uh from your donor adise fund. How much should I contribute? And that and that’s it. Okay. So, now I’m putting you on the spot. Yep. Is there enough time? Here we are. It’s a it’s very end of November. Is there enough time right now to open up a donor advised fund to make the contribution to add that complexity here at a rush at the 11th hour or the 11th month call it? Yeah. All you need to do is open the account. So, I would work with your planner, make sure they’re certified, make sure they’re aware of your financial life, but just reach out to your certified financial planner and say, “Hey, I need to open a donor advised fund and I’d like to put something into it.” Now, what is that something? My preference would be uh highly appreciated assets. I mean, you can actually put company stock into it. We’re not going to do that before the end of the year, but you So, so think about this. I’ve got an individual stock that’s been appreciating and I’m going to take that stock and push it into the fund because all you have to do I mean the beautiful thing about the donor advised fund is all you have to do is get it into that account before the end of the year and it’s done. And lots of times if if you’re in a small business, you’re calculating, well, what is the profit? If we’re tithing off the profit, what is the profit before the end of the year? And how do we do this? And then the bookkeeper has to cut a check and then you have to deposit that check and it has to be good. And then you write a check to the you you cut all that stuff out, get the account opened, and either fund it with appreciated securities or cash. Mhm. Just recognize, and we’ve said this before, it is the year that the contribution is made that you get the tax deduction. If you send money from your donor-advised fund to a dozen different charities and some of them spill over into January, they’re going to be just as happy to receive those funds in January as they would have in December. But in this case, it doesn’t affect your tax because the contribution to the donor advised fund was done on time. Yeah. And a couple strategies is one, you put that high appreciated stock in there. If you’re going to buy it again, so I’ve got we’re we use the example of Microsoft with $100,000. I bought it for 50. It’s worth a h 100red. I put the $100,000 in the donor adise fund. I sell it immediately if my gifts are going to happen within the next, say, 18 months. And then I’ve got $100,000 someplace else. I reby the stock but now I have a basis of a h 100,000 in Microsoft instead of my original basis my original contribution of 50,000. So this is you there are some kind of life hacks that you want to use and be aware of. So is this the year is this the year for you to where it makes sense? I I think this is um you know we first we did our first show about donor advice funds I’m going to say three or four years ago and they were a surprise most people didn’t know about them I would I would say the world is waking up to donor adise funds still fewer people are using them than should be and I think it’s because of what I just sort of put Kevin on the spot with and and that is it is going to add a little bit of complexity to get it started. It’s changing your operating system. Is it worth it? Yeah, it most likely will be for potentially you and the charity as well as for your tax situation. Um, and then is there enough time? If you’re listening to this saying, I’ve heard these guys talk about this three or four times and you know what, I do think this makes sense. There’s time. There’s time to get it started. maybe not do all of the creative uh financial footwork that you could do out there in the future, but there is time to get it open and get it funded and use it to benefit your tax planning here in 2025. Work with your certified financial planner on that. All right, we’ve got more coming up here on the Wise Money Show with Korhorn Financial Group.
Break 3: Okay, let’s do one bonus question and at least be one for three. What’s on the tax theme? What’s one tax strategy you wish more people knew about? And this is like right in line with donor adise fund and you can’t say donor advice fund. What is one tax strategy you wish more people knew about? Uh the shoe box method of HSA um funding and letting it accumulate as a retirement vehicle. I I think more people would benefit from that than actually utilize. Um, and not everybody has the cash flow to pay for the bill out of pocket and let the HSA, you know, remain intact and growing. Uh, not everybody has invested their HSA. You know, some are just have it in a in a bank account or a credit union or something like that. So, what do you think, Kevin? The QCD, the qualified charitable distribution. Get into that next. Yeah, I think that is the best kept secret. And um I we work with lots of folks that are going to have resources beyond their re retirement plan and so they’re not looking to their retirement plan as this is going to be my source of retirement income and how I’m going to live. And so if you can for those folks, man, fund that retirement plan, stuff that thing to the gills with pre-tax money because then over your lifetime, you can pull that out. Don’t touch it. Send it directly to the charity after you’re 70 and a half and bam. I would say taking advantage of the retirement savers tax credit. And you might say, well, what’s that? That’s not a strategy. That’s just getting a credit. I I know it’s getting it’s doing retirement plan contributions when financially it might be feel even more of a sacrifice because your income is low and but but prioritizing that being aware of that so you can get this extra benefit of a retirement savers tax credit at I wish more people knew about that and and I wish more people knew about that earlier in life maybe a couple years before it’s even a real possibility for them because that’s when we’re when they’re signing up for the student loans or the house that they are it’s just on the verge of what they can afford or the car that is like ah that one’s new and that’s better than the used one and all of that makes commitments with future dollars and means oh I actually can’t save a little bit more into my retirement account two years later and take advantage of this retirement savers tax credit. All right, four segment start with QCD and after that we’ll probably get into some other strategies as well. So here we go. Four segment landing the plane.
Segment 4: One of the tax secrets that we would say more people should be taking advantage of than than currently are is a strategy we’re about to share with you right now. This is the Wise Money Show with Korhorn Financial Group. Thanks for being here. My name is Mike Bernard with me in the KFG studios, Kevin Korhorn and Josh Gregory. Every episode of the Wise Money Show as well as a lot of other content is on the Wise Money YouTube channel. Go to YouTube, search the Wise Money Show, subscribe to it there, rate the program or excuse me, turn on notifications so you’re made aware every time we drop new content and leave questions there as well. What’s the one giving strategy that you’re using right now that we haven’t talked about just yet? Share that here in the comments on the Wise Money YouTube channel. All right, guys. QCD, qualified charitable distribution. This is a strategy that’s not available to everyone, but I will concede as Michael Paul Roth Bernard who has Roth colored glasses on that I wear every day that everyone should be using a Roth. I will concede that the QCD is one major reason why you should not overlook pre-tax contributions. Yeah. What’s the QCD? How does it work? So, uh, if you have contributed money to a traditional retirement account, maybe a 401k or a traditional IRA, what you know is that that money has been growing and accumulating, hopefully compounding with time, and it has been tax deferred. But eventually, you have to pay the tax on it. And the government will force your hand that you will at it used to be age 70 and a half now age 73 they force you to start pulling money out of these accounts and that’s called a required minimum distribution. Well, along the way, the government gave an opportunity for you to check that box and satisfy your required minimum distributions, not by pulling the money out, adding it to your tax return, paying your taxes, and then spending it on life. you, they gave you the alternative to uh give the money directly from your traditional IRA to a charity of your choice and not count it on your tax return, therefore not pay tax on it, and still qualify or or check the box on your required minimum distributions for for that year. Interestingly, that all began back when age 70 and a half was the magic age for required minimum distributions, and they have not raised that. So, even at age 70 and a half, before you’re even required to begin taking distributions from your IRA, you now have this tool available to you, this strategy for giving to those causes that you care about, but never having the income or that distribution from your IRA land on your tax return. It’s saving you money in taxes and still getting the same money to the the charity that receives it and doesn’t pay any taxes. Yeah. I mean, when you talk about common misconceptions about a Roth IRA, one of the misconceptions, and no offense, Mr. Bernard, is that you should have all your money in a Roth IRA because if you do that, you do take some planning opportunities off the table. And so this is where but the thing that I love about the QCD like that can be a strategy that in your late 30s and early 40s depending on your financial life and your situation you might be able you you might be setting the the trajectory and the target for your financial life for 70 and a half and saying hey and I’ve we’ve worked with many different business owners saying look this money this 401k money you’re never going to touch it so make it pre-tax and let that build until they’re 70 and a half and then do the QCD. Yep. Yep. That’s right. Consider taking advantage of it. And if and if you’re like, “Yeah, I’m not age 70 and a half yet. It doesn’t really apply to me.” Could it apply to your folks? And uh are they aware of it? Most people, and I’ve shared this before, the reason why I think the QCD is is not utilized as often as it should be is because by the time you get to 70 and a half, if you’re charitable, old habits are hard to break, right? You have a way of giving and it might even feel it’s supposed to be sacrificial. I’ve got to be able to write the check. And doing a QCD changes that and it’s going to feel different. And I think a lot of people say, “Ah, I don’t really want to do it at that. I don’t want to make that change.” So maybe help your folks, talk to them, make sure that they’re aware of the strategy. And so does a donor advise fund. And it makes it feel different. So the question is, can I give weekly or monthly to my church either from a QCD or a donor adise fund? And this is where you want to work with your adviser on the logistics of that and see what makes sense. But part of it is the internal finance piece and how does it make me feel when it happens like this. Okay guys, we got a few minutes left here. I’m going to open it up to other giving strategies and um whether this is to charity or to other nonprofits or even donation or not donations but gifts to kids or other generations. What are some other giving strategies to consider here before the end of the year? Well, I this is maybe a traditional approach. I mean, there there may be some organizations that over the years, maybe the past two decades, every Christmas time, you’re writing a check to that organization. Uh we talked earlier in the show about maybe there’s a different way to to give. But there are still some organizations where boy, if you had them on your list of of uh organizations to support, there may be some extra tax benefits that come along with it. And if that’s an organization that you, you know, have a heart for anyway and it can bring about some some better benefits to you, then maybe it’s a win-win. I’m thinking about, you know, uh, Indiana colleges and universities, for example, here in our backyard, uh, there’s a tax credit on your Indiana tax return that up to 50% of the first couple hundred that you give comes right off the tax return. So, literally $100 worth of tax savings if you give 200. So, anytime that you have the ability to um almost amplify the power of your gift or reduce what it costs you, but magnify what it benefits them, that’s a win-win, right? And so, be looking for those types of of situations. I know Kevin, you’ve brought up before um some of the uh scholarship granting organizations and and the power there. I don’t know if that’s worth saying a word about. Yeah, you have to do it. I mean, I in my humble opinion, if you’re in a state that has the SGO, scholarship granting organization, if you give the money in Indiana to a school that accepts these, then you get a 50% credit on your state taxes. And again, do we like a deduction or a credit? I’ll take a credit all day long. So, just use the $10,000 number. I give $10,000 to Covenant Christian School. I get a $5,000 deduction on my Indiana state taxes. And the question is, and this is what a lot of folks, you know, if you like I I sleep in Michigan and live in Indiana. So, because I live in Indiana and work in Indiana, I pay taxes in Indiana. And it’s it can be confusing because people think, “Oh, well, I I’m not in Indiana, so I can’t contribute to a 529 or an SGO and get any kind of benefit.” You can. So, you put your $10,000 in, you get a $5,000 credit, but it’s you also get a charitable deduction if you’re itemizing your deductions. So, if you’re in the 37% tax bracket, that’s another $3700. Yeah. You mentioned one that I was going to mention. This is not to a charity, but a 50 or excuse me, a 529 plan. It that’s a that’s a gift. It’s you’re you’re making a gift to a your child or to a grandchild. and doing so. If you’re a grandparent wanting to help one of your grandkids with college or maybe you want to help your kids pay for your grandkids college, you can make a contribution to a 529 plan. I it’s a it’s a gift and in doing so you if you live in a state that offers a state tax benefit, you get that state’s tax benefit. So in Indiana, the state tax benefit is a tax credit on the first $7,500 that you contribute to the state’s 529 plan. Uh so that $1,500 of tax credit is on state taxes only. So So if you don’t pay any Indiana state taxes, there’s no state taxes to get a credit against. So there’s no benefit. But if you are paying Indiana state taxes, that can be an enormous benefit. You’ve got to do that. Well, you have to have the account open in the calendar year. You can fund it now up until April 5th. And you can even be a college student. Yeah. And do that. Yeah. You know, I would encourage you, we’re talking about strategies and very formal structures and stuff. And don’t lose sight of just the simple act of regularly being generous. And that could be you carrying a few bucks around in your pocket. I I have a friend who has a smiles fund. He carries a $10 bill with him and he’s looking for someone that he can put a smile on their face and just surprise them with some sort of blessing. It is the act, it’s the habit of being generous. And I got to tell you, you know, some of the smiles that that would put on your own face. Um the satisfaction of knowing that you are blessing someone else. That enriches your life and uh it’s way more powerful than that $10 bill would have been in your own pocket. Can I get his contact info? I know what cars you drive. Now, that’s a good word to end on, Josh, because of all the fancy strategies. Let’s not lose sight of what the gift is about. So, all right, that’s all the time we have for today. On behalf of Josh Gregory, Kevin Korhorn, all of us at KFG. Have a great weekend. We’ll see you next Saturday for the Wise Money Show with Korhorn Financial Group. Securities offered through Silver Oak Securities, member FINRA/SIPC. Advisory Services offered through KFG Wealth Management LLC. Join business as Korhorn Financial Group. KFG Wealth Management LLC and Silver Oak Securities Incorporated companies are unaffiliated.
