In the world of financial planning, one of the most rewarding aspects is discovering innovative ways to align your financial goals with your passion for giving. The story we're about to share is a testament to the creative synergy between minimizing taxes and maximizing the impact of a Donor Advised Fund (DAF).
Our clients embarked on a journey that began as a capital campaign contribution to their church but ultimately evolved into a powerful financial strategy, involving a Donor Advised Fund, major Roth conversions, and a long-term vision for both charitable contributions and financial security.
A DAF is Born
It all started with a desire to give back to their community through a substantial contribution to their church's capital campaign. This initial act of generosity laid the foundation for what would become a transformative financial plan. The challenge, however, was that most of their assets were tied up in tax-deferred accounts, and their substantial pension income meant that a Charitable Remainder Trust wasn't the right fit.
Maximizing DAF Contributions
Our clients decided to channel their giving goals into a Donor Advised Fund. Every year, they contributed the maximum amount allowable to their DAF, which, in their particular case, was 60% of their Adjusted Gross Income (AGI) for a cash contribution. They repeated this process for three years, with each contribution working in tandem with major Roth conversions.
The Synergy of Roth Conversions and DAF Contributions
Here's where the magic happened. By parlaying Roth conversions that increased their AGI with offsetting DAF contributions equal to roughly 60% of their AGI, they created a substantial Donor Advised Fund. This fund not only allowed them to make meaningful charitable contributions during their lifetime but also had a profound impact on their long-term financial planning.
A Win-Win for Charity and Financial Security
The beauty of this strategy lies in its dual benefits. On one hand, it enabled our clients to establish a meaningful DAF from which they could make generous charitable contributions, thereby amplifying their ability to support causes close to their hearts. On the other hand, it had a significant impact on their financial security.
Reducing Lifetime Tax Liability
One of the most remarkable outcomes of this financial strategy was a substantial reduction in their estimated lifetime tax liability. By maximizing DAF contributions, they effectively lowered their taxable income while simultaneously boosting their Roth IRA savings. The latter was earmarked for unexpected healthcare costs, long-term care, and reducing future Required Minimum Distributions (RMDs).
Conclusion: The Power of Strategic Giving
This story exemplifies the profound impact of strategic giving through a Donor Advised Fund. It showcases how you can merge your charitable goals with your financial plan, leading to a win-win situation. By maximizing DAF contributions while simultaneously optimizing Roth conversions, our clients not only reduced their lifetime tax liability but also secured their financial future.
The synergy between smart financial planning and generous giving is a testament to the creative possibilities within the world of wealth management. It's a reminder that financial success can be deeply intertwined with the ability to make a meaningful impact on the world, both during your lifetime and beyond. So, when it comes to aligning your financial goals with your passion for giving, consider the extraordinary potential of a Donor Advised Fund, and watch as it transforms your financial plan into a force for good.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by GW Financial, Inc. to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 GW Financial, Inc.