As a challenging year comes to a close, giving is a high priority for many people. Learn about some investor-friendly ways to give, fit for the season.
As 2020 draws to a close, some of us may still be asking, “What just happened?” while others look ahead, eager for a fresh start in 2021. No matter where you stand, as we enter the season of giving, we have the opportunity to end the year on a positive note, by connecting with loved ones and giving to the causes we care about.
In fact, many people find themselves in more of a giving spirit. In a survey of more than 1,100 Morgan Stanley Wealth Management clients, nearly 30% said that charitable giving has become a higher priority this year.1
The need is certainly great. If you feel especially passionate about giving this holiday season, here are some investor-friendly ways to do it.
There are many creative and traditional ways to give back. One strategy is to contribute appreciated securities to a donor advised fund (DAF), such as MS GIFT. Administered by a 501(c)(3) public charity, a DAF offers a simple, tax-advantaged way to support your favorite charities. If you’ve been investing for a while, you probably hold securities that have appreciated significantly. When you contribute these assets to a DAF, they can stay invested and potentially grow, tax-free, until you choose which charities you want to receive a cash donation. This gives you and your family time to decide where your gift could have the greatest impact, while reducing the potential tax hit from capital gains if you had sold the securities and donated the cash.
If you’re retired, consider donating your retirement distribution to charity. If you’re at least 70½, you can usually make a Qualified Charitable Distribution (QCD) to an eligible organization of up to $100,000 per year directly from your Individual Retirement Account (IRA). QCDs generally come with no tax costs to you or the charity receiving the donation—allowing you to count a QCD toward your required minimum distribution for the year, if certain rules are met, reduce your taxable estate and feel good about supporting a cause you care for.2
Whatever way you choose to give, remember the great need among those struggling with poverty and other acute needs, such as food insecurity. “Hunger in America existed long before COVID-19, and the pandemic has exacerbated this issue,” says Claire Babineaux-Fontenot, CEO of Feeding America. “Food banks across the country rely on donations and support from volunteers to make an enormous difference in the lives of our neighbors in need.” For more than a decade, Morgan Stanley has sought to help end childhood hunger through nearly $40 million in support of Feeding America, as well as dedicated employee volunteerism.
Giving gifts to family members is a cherished part of the holiday routine for many families. If you’re planning to give to family this year, consider these simple questions:
- Do you want to give family members a financial gift? If so, remember that you can give up to $15,000 per individual this year without having to file a gift tax return. However, gifts exceeding $15,000 per individual count against your lifetime gift and estate tax exemption of $11.58 million per individual.
—If Yes: Do they need it more this year than other years? Should you increase the amount? If you’ve done well this year, but you know some of your loved ones haven’t, this might be the year to think closely about how your generosity can best help.
—If No: Are they saving toward something (education, a house, a passion project) that you could contribute to? If you know a loved one who struggles to save, funding an initiative directly, rather than handing them money, might make a great gift.
- Have you considered opening or contributing to a 529 plan? A 529 plan is a tax-advantaged way to save and invest for future education costs. Earnings grow tax-free, and as long as you use the funds for qualified education expenses, they are generally exempt from tax. Anyone, including grandparents, can contribute up to $15,000 per year ($30,000 for married couples electing to split gifts) to any individual’s 529 plan, without incurring gift tax. In addition, you can bundle five years of contributions into one $75,000 contribution ($150,000 for married couples electing to split gifts), provided you make the required election on a gift tax return for the year of the contribution. If you have the means, you could even contribute a year’s worth of gifts in December, followed by five years of contributions in January.
About half of the clients in our survey said they have felt uncertain or frustrated due to the pandemic; a third have felt uneasy, stressed or apprehensive. Reduce your stress about money around the holidays by making sure you have a plan, based on a clear goal.
Staying focused on that goal can help you avoid making poor decisions with your money or getting over-anxious about market volatility. When the stress finds you, go back to your goal and trust the plan. Your Morgan Stanley Financial Advisor can help. Connect with your Financial Advisor today to discuss how you can set yourself up for a successful year-end and a better 2021.