For many people, their alma mater saw them through some of the most formative years of their life. Lessons learned, friendships formed, memories made – the time spent at your university likely had a lasting impact on your life and launched you into the career you love.
It’s no surprise that many individuals are interested in university donations that give back and help a new generation of students receive equivalent benefits!
While it may seem obvious to donate, there are no cookie-cutter approaches to generosity. The best way to give university donations depends on your situation. Here are some options to discuss with your tax professional.
5 Efficient Ways to Make University Donations
Generally speaking, cash donations are less than optimal vehicles for your generosity. It works if you want something simple, but they are only deductible if you itemize your tax returns. Even so, cash donations may not have the impact you want on your university.
Here are five more strategic ways to make university donations that create a lasting impact on a new generation of graduates while minimizing your tax liability.
1. Charitable Remainder Trust (CRT)
The first vehicle you might explore for future donations is a charitable remainder trust. This allows you to take a tax deduction on contributions to the trust here and now while also excluding them from your estate upon your death. Meanwhile, the CRT pays your beneficiary some of the money for a set term.
After that term, the remaining balance is given to the nonprofit of your choice – in this case, your university. However, this does not mean that your beneficiary can drain the trust of its assets. There must be 10 percent left over to donate to your alma mater (or whichever charity or charities you select).
Why consider a CRT for your charitable giving?
Charitable remainder trusts come with many tax benefits, including the fact that donating assets to a trust eliminates capital gains taxes upon transfer. If you have highly appreciated stocks, real estate, art, and more in your portfolio and want to maximize your gift, consider allocating them to a trust instead of selling them and donating the proceeds.
2. Donor-Advised Fund (DAF)
A donor-advised fund (DAF) is very closely related to a CRT but with a few key differences. Instead of waiting until a CRT is tapped out of financial resources for your beneficiary, you can make good use of your charitable gifts here and now – while you’re still around to experience the changes made because of your donation.
The benefit of a DAF is that you can earmark funds for donation right away, allowing you to take an immediate tax deduction. However, the money does not have to be parceled out until a later date.
Make one-time gifts, set up recurring donations, or make the school the final beneficiary. You don’t have to choose all charitable beneficiaries right away and can maintain anonymity.
The major difference is that there is no income to you or your beneficiaries as there is through a CRT. Compare CRTs and DAFs in our comprehensive guide here.
3. Stock Donations
For those who don’t want the hassle of setting up a CRT or a DAF, you may choose to donate some of your publicly-traded stocks. Any stock you have owned for more than one year can easily be donated to the university of your choice.
You can deduct the fair market value of the stock from your taxable income (provided you itemize your return).
Plus, you avoid the capital gains tax that you would incur if you sold the asset and simply donated cash to your alma mater. This is particularly salient for anyone who has seen massive appreciation in their stock positions. Give the stock itself and forget about selling it so that you can mitigate the tax impact on your own portfolio.
4. Qualified Charitable Distribution
Another option to maximize your charitable giving is via Qualified Charitable Distributions. These funds come from traditional IRAs and require you to start taking distributions from your retirement savings accounts when you hit age 72.
As long as your distribution moves directly from your IRA to your university, you can avoid the income taxes on the distribution and give up to $105,000 per person.
Unlike other opportunities, you don’t have to worry about itemizing your taxes if you don’t yet have to spend your required minimum distribution. It offers the same benefits as an itemized tax return without the hassle.
If you do have to take your RMD (over age 72) but don’t need to spend the money, you can simply shift the funds to your QCD and forgo increasing your income.
5. Real Estate
Real estate can be handled in a few different ways, all of which can make a significant impact on your charitable giving. First, you can give debt-free real estate to a foundation and take a charitable tax deduction. Meanwhile, the foundation handles the sale and funnels the money in the way you designate.
On the other hand, you might want to invest that real estate in a charitable remainder trust and claim some recurring distributions with the remaining balance of the trust to be donated to your alma mater. You could also retain the property, using it to live in or rent until your passing, at which point it is given and sold for a donation to your designated purposes.
Alternatively, you could sell real estate to the foundation at a discount. You get to take the tax deduction for the difference between the sale price and fair market value and the foundation gets to pocket the proceeds on the sale.
Considerations for Giving
Before you decide which method of giving is best for your bottom line, you will want to check the university’s status. For most of these strategies, the school is required to be a registered 501(c)(3) nonprofit to allow donors to maximize tax benefits.
You also need to keep in mind that you should stay within the annual charitable deduction limits. Charitable cash contributions are capped at 60 percent of your adjusted gross income for the year. If you will be giving something other than cash, contributions to charities max out at 50 percent of your adjusted gross income.
The bottom line is that you should always work with a professional. They can help you minimize taxes while maximizing the impact on the university – without putting your own future and retirement at risk.
Consult with Magellan for Your Charitable Giving
Magellan offers you the comprehensive estate, legal, and tax planning services you need in a one-stop shop. We can help you start a charitable remainder trust that allows you to make university donations in a tax-advantaged way.
From tax structure to ongoing financial management, we want to help you create a lasting impact on the causes and organizations you care about. Contact us today for a free consultation.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.