You’ve been giving back for years. From being a Girl Scout to the early days of your career when you had more idealism than cash, you’ve always made it a priority to support your community. Now, as you plan for retirement, giving back is much the same – and completely different.
Some Myths About Donating Can Cost You
First off, there are a lot of myths about giving back in retirement that are floating around. Some are based on parts of the tax code that have expired, while others are among the urban finance myths that are floating around. For instance, there’s a fairly common finance myth that if you’re still working and can attach a dollar value to your professional time, then donating your services to a nonprofit as a volunteer is tax-deductible. Sadly, it isn’t so. Volunteering for the community may be rewarding, and a great way to bridge the gap between paid work and retirement, but it is not tax-deductible. You can deduct some volunteer activities, though: you can deduct any charity work related mileage expenses. So, if you spend time visiting local businesses to secure silent auction donation or travel to board meetings, record those miles – they are deductible.
Another missing deduction, but this time one that was once available but has expired, is the ability to donate funds from your IRA to the cause of your choice, avoid taxes on the IRA distribution, and have this charitable gift count towards your required minimum distribution – as long as you’re 70 ½ or over. Up until last year, you could take advantage of this tax benefit, says Alan Silver, founder of Boston-based ParTimeCFO.com, who has for the past 16 years served as Chief Financial Officer for over 50 companies, including one that has gone public. This provision has expired from the tax code, notes Alan, so this particular way to pay less tax on your IRA distributions isn’t available to this year’s retirees. There are still IRA-related reasons to donate as you plan for retirement. One is that, although you can’t take advantage of the former tax benefit, if you make charitable donations in the same amount or more as you take from your IRA, you still get the charitable donation deduction to soften the tax blow of a boost in income, says Alan.
Ask Your Employer
And if you’re still working, remember your employer’s matching donations program for employee charitable donations. Those matching funds likely disappear the minute you’re not working, so if you still have a few years before you hit retirement, consider upping all your matchable donations to get the most of this employee perk. And ask HR if retirees qualify for any types of matching funds – it never hurts to ask.
Put Your 401k Where Your Conscience Is
If you’re working and strategizing where to invest your 401k money, many plans offer a social-investment option. As long as a socially-responsible fund meets your long-term goals for stability and income, allocating some of your 401k to a fund that supports the environment, education, or other causes you support can provide retirement funds and help you give back.
Retirement means taking a long look at all financial commitments, including your charitable support. Luckily, with some planning, the years leading up to and during retirement can be a time when you can still give back on a fixed income.
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