How Can You Help?

It has been a brutal, exhausting year, and people are hurting. COVID-19 and the racial tension has cast a pall on 2020, and people are living with heavy hearts. As a result of the economic, political, and social turmoil, small charities are in a pinch. Local nonprofits are on the ground in your community doing work few people are willing to do, and they need your assistance. What kind of help do they need? Financial support. These vital organizations rely on donations to keep their doors open, and the recent economic trouble is leaving their coffers empty.

Small nonprofits are the original first responders. Local nonprofits know what they are doing because they have spent years cultivating relationships. In a recent Wall Street Journal article about small charities, they wrote, “The coronavirus pandemic has highlighted the importance and the agility of small community-based charities, especially in a crisis. Often these groups don’t get much attention. They are overshadowed and out-funded by big better-known nonprofits like the American Red Cross and the Salvation Army.” They added, “Local charities also often know who most need help.”[1]

If you decide to give, give only your resources, and leave your opinions at home. Nonprofits don’t need your advice on how to improve their organization. Also, don’t tell the organization how to best spend your donation. If you don’t trust them to handle your gift correctly, give it to someone else.

How can you help? Here are a few ideas on how to donate to nonprofits.

  1. Cash. Cash is easy to give away – quick and efficient. The IRS generally allows you to deduct 50 percent of your adjusted gross income (AGI) for tax purposes. If you give more than 50 percent of your AGI, the IRS allows you to carry your donation forward for up to five years.
  2. Appreciated Securities. If you own stock with a considerable capital gain, consider donating it to your favorite charity. When you gift your shares directly to your charity, you will avoid paying a capital gains tax, and you can deduct the fair market value of your gift. The charity will sell the stock to receive the cash, and they, too, will avoid a capital gains tax.  For example, if you purchased 100 shares of Amazon ten years ago for $110, you have an unrealized gain of $2,582 per share based on a closing price of $2,692. By donating your shares, you avoid the capital gains tax of $51,640 on your gain of $258,200. The charity receives $269,200.
  3. Qualified Charitable Distribution. The IRS allows you to satisfy your required minimum distribution by donating your money directly to a charity from your IRA. You can donate up to $100,000 with a qualified charitable distribution (QCD). You can avoid paying taxes (legally) with a QCD distribution, and it will satisfy your required minimum distribution for the year.
  4. Donor-Advised Fund. If you want to support several charities, but you’re not sure how much to give, or when to give it away, then consider a donor-advised fund (DAF). You can contribute cash or securities to a donor-advised fund, receive a charitable deduction, and then payout your donation over several years. Once you fund your DAF, you can take your time to decide how much money to give to your charities. You can also sell your assets inside the DAF and reinvest the proceeds into a diversified portfolio of stocks, bonds, or funds.
  5. Charitable Remainder Trust. If you own appreciated stock, land, or some other asset, you can transfer it to a Charitable Remainder Trust (CRT) to generate income. After you transfer the investment to your trust, you can sell it to avoid the capital gains tax. You can deduct your donation from your taxes and reinvest the proceeds. The CRT allows you to withdraw 5% to 8% of your account balance each year. At your death, the assets in the trust will transfer to your charitable beneficiary. The CRT is a great way to avoid a capital gains tax, diversify your portfolio, and benefit your favorite charity.  Your gift to a charitable remainder trust is irrevocable.
  6. Charitable Lead Trust. A Charitable Lead Trust (CLT) is the opposite of a Charitable Remainder Trust in that your charity of choice will receive the income from the trust, and your beneficiary will inherit the asset on your death. If you want to transfer assets to your children, the CLT is an excellent choice because it removes the asset and growth from your estate. The CLT is a limited-term trust, and it is irrevocable.
  7. Private Annuity. A private annuity works well with colleges, universities, and nonprofits. You can donate stock, land, or any asset to your charity, and they can establish a private annuity for you so that you can receive income for life. Your charity can sell your asset tax-free and use the proceeds to fund their operations. They will create an annuity for you and your family based on the size of your gift. You will receive a monthly, quarterly, or annual check for ten or fifteen years along with a tax deduction.
  8. Private Foundation. You can establish your own nonprofit to benefit other nonprofits to create perpetual gifts. Donations to your foundations are limited to a 30 percent deduction for cash and 20 percent for appreciated securities. A private foundation is expensive to maintain, and you will need to create a board of directors.

If you don’t have financial resources to give, donate your time. Small nonprofits are in dire need of helping hands to assist them with a variety of tasks. A Google search for nonprofits in your neighborhood will yield plenty of fruit and give you several choices of groups to serve

Our church serving model is FUN: F stands for flexibility, U stands for useful, and N stands for not about you. When you’re ready to give or serve, don’t forget to have some fun!

When someone has been given much, much will be required in return; and when someone has been entrusted with much, even more, will be required. ~ Luke 12:48

June 27, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

[1] https://www.wsj.com/articles/how-a-small-charity-pivoted-to-get-food-to-those-hit-by-covid-shutdowns-11593010891?mod=itp_wsj&ru=yahoo, Betsy Morris, June 24, 2020

To 403(b) or not to 403(b)?

Teachers and non-profit professionals do remarkable work. They prefer to work for a cause rather than a paycheck. The hours are long, but the impact they have on others is significant. I still remember the influence my 4th-grade teacher had on my life.

My mom, grandmother, aunts, sister, and wife have all been teachers and my wife currently works for our church, a non-profit organization. I’ve been surrounded by educators and non-profit professionals my entire life.

A significant benefit for teachers is the defined benefit program. In Texas, teachers participate in the Texas Retirement System, or TRS. At retirement, they can enjoy a lifetime of guaranteed income. If you’re a teacher, you can access your benefit information at mytrs.com.

However, a benefit often overlooked is the 403(b). The official title for a 403(b) is the tax-sheltered annuity plan, and it’s available to employees of public schools, non-profit organizations, and certain ministries. If you work for a 501(c)3 organization, then your employer qualifies for a 403(b) plan.

The tax-sheltered annuity name causes confusion because it includes “annuity” in the title. I’ve talked to several teachers about their retirement options, and most aren’t aware they can also invest in low-cost mutual funds. You can contribute to an annuity or a mutual fund.

I recently helped a friend convert his 403(b) from a high-cost annuity sold through a broker to a low-cost mutual fund at Vanguard. His previous annuity was charging him more than 2.5%.  We were able to lower his expenses by 94% because we moved his plan to a mutual fund with internal fees below .14%.

Insurance companies sell 403(b) annuities to teachers at benefit fairs, and you may have attended one in the past. The atmosphere is a financial carnival.  I would get calls from teachers telling me they need to open a new 403(b) annuity for the coming school year after attending one of these events. Most weren’t told they can contribute to their existing plan or invest in a low-cost mutual fund. As a result, some teachers now own four or five different retirement accounts, which is expensive and inefficient. How many 403(b) accounts do you need? One!

How can you improve your 403(b)? Here are a few suggestions.

You can contribute to your retirement plan through a salary reduction agreement with your employer. For example, if your salary is $75,000 per year and you contribute 10% of your pay to your plan, then your take-home pay will be reduced by $7,500. The $7,500 is now in your retirement account and hopefully growing. Your distributions will eventually be taxed as ordinary income.

You can also contribute to your retirement account through a Roth 403(b). A Roth allows you to add to your plan with after-tax money.  Your funds will grow tax-free, and when you start receiving distributions, they’ll be tax-free as well. Don’t confuse after-tax contributions with Roth contributions. After-tax is also known as voluntary, and they’re above and beyond your elective deferrals.

You’re allowed to contribute $19,000 to your 403(b). If you’re 50 or older, you can add another $6,000. The maximum allowable contribution (MAC) to your plan is $56,000. The amount is a combination of elective deferrals, non-elective contributions (from your employer), and after-tax contributions. If your income is less than $56,000, you’re allowed to contribute 100% of your compensation to your account.

Another bonus of the 403(b) plan is the 15-year rule. The rule allows an employee who has worked for their employer for 15 years or more to contribute an extra $3,000 for up to five years, or an additional $15,000.

After contributing to your 403(b) plan for years, when can you take the money out? The earliest you can withdraw your money without penalties is age 59 ½.  Distribution options can also apply to hardships like medical expenses or tuition payments, to name a couple.

Once you retire or leave your employer, you have the option to roll over your plan assets to an IRA or another employer’s retirement plan if it allows for incoming transfers.

How do you know if your 403(b) is doing well? If you’re not sure what you own, how much risk you’re taking, or the fees you’re paying, we can help. If you have multiple plans, you can consolidate them into one plan. If you have an expensive plan, we can help you locate a low-cost provider like Vanguard.

Those who are happiest are those who do the most for others.” ~ Booker T. Washington

October 21, 2019

Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation.