Year End Giving From Your IRA

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Now let's dive into the podcast. At this festive season of the year, those of us with means should make some slight provision for the poor and destitute. The work houses, they're still in operation? They are.

I wish I could say they were not. Oh, what can we put you down for? Nothing. You wish to be anonymous?

I wish to be left alone. Hi, I'm Rob West and that was Ebenezer Scrooge in A Christmas Carol. Are you making provisions for year-end giving in this festive season? I'll talk about a wise way to do it and then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial decisions. Well, the holidays are a time of traditions for most of us and one of those may be special year-end giving. Many times that means just writing a check to your church or favorite ministry, but we want to thank the folks at the National Christian Foundation for a great article on an alternative way to give and a new twist in 2023. Now, maybe you've wanted to make some special gifts this year, but economic stresses have taken a toll on your cash reserves. There are tried and true strategies for making gifts out of your IRA and a new option to fund a charitable gift annuity that way. I know IRAs can be confusing and eyes are probably glazing over all across the land, but stick with me for a moment. We'll break down the options by age and that should make it easier to understand how to maintain or even increase giving to your favorite ministries. Of course, these are general recommendations and may not apply to everyone. You should consult with your CPA for specific advice based on your circumstances.

Okay, here are a few terms you need to understand first. Adjusted gross income or AGI. This is basically your income before you take your standard or itemized deduction.

Regular distribution. This is just money taken from your IRA after you turn 59 and a half. It's reported as income on your tax return. Qualified charitable distribution or QCD. This is a distribution from an IRA paid directly to the qualified charity after the owner turned 70 and a half. In 2023, an IRA owner can make QCDs of up to a hundred thousand dollars annually.

The amount is not reported as taxable income on your tax return. Required minimum distribution or RMD. This is money that must be withdrawn from an IRA when the owner reaches 72 or 73 depending on their birthday.

You can satisfy this requirement by making regular distributions. QCDs or both from your IRA. So you'll have to make distributions at some point but you may be able to minimize the tax hit by taking certain actions based on your age. At 59 and a half or older, you can take distributions from your IRA without that pesky 10 percent penalty. You still have to pay taxes on that money but you can offset some of the federal income tax by making a deductible gift to charity in the same year.

That option is always available. In 2023, the deduction limit for cash gifts is 60 percent of your AGI and that will be tightened to 50 percent of your AGI after 2025. Now that's only for federal taxes. You should consult with your tax professional to see how cash giving affects state taxes, if any. Okay, here's the next age to look at.

70 and a half. As I mentioned, that's when you can make a QCD directly from your IRA to a charity. It does not trigger a taxable event because that money is not included in your adjusted gross income. Now, what's new in 2023 is that a cash gift can fund a charitable gift annuity or CGA. QCDs are limited to a hundred thousand dollars per year but starting in 2023, you can make a one-time election to use fifty thousand dollars of your QCD to fund a charitable gift annuity which will make regular lifetime payments to you or to you and your spouse. What is left afterwards is kept by the charity.

Now, at age 72, every IRA owner must start taking an annual required minimum distribution if they haven't started already. You can do that with regular distributions, QCDs or both. For example, if your RMD is fifty thousand dollars, you can make a QCD of thirty thousand directly to a charity with a twenty thousand dollar regular distribution to yourself. You could make that twenty thousand a deductible gift to a donor advised fund at the National Christian Foundation. Go to NCFgiving.com to learn more. Alright, your calls are next, 800-525-7000.

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Absolutely free. We know you've learned to be suspicious of those words, but really you can get biblical financial wisdom delivered to your inbox each week absolutely free. Articles, videos, podcasts, and special offers on biblical resources. Nearly 60,000 people receive our free weekly wisdom email and you can too. Create your free faith by account by going to faithfi.com and click sign up to begin receiving weekly wisdom in your inbox. Welcome back to Faith and Finance. I'm Rob West. Let's head right back to the phones to New Hampshire. Alex, thanks for calling.

Go right ahead. Hi, my daughter just graduated from college and her fiancé's graduating in December and they're both 21. They're both debt-free from college, but they have really no emergency fund. They're thinking about buying a house, an FHA loan, five percent down, 6.75. I've kind of said just because you can do something doesn't mean you should do it. They just think they're going to accrue some, not waste their money on rent, and I just wanted your feelings on that.

Yeah, well I'm definitely in line with your thinking on this. I mean the challenge is home affordability is at its lowest level ever. I mean we've got this one-two punch going on with higher prices and higher interest rates.

So think about this, Alex. Three years ago you could get a 30-year mortgage at three percent and the median price for an existing home in the U.S. was just over $300,000. Now fast forward three years later, the 30-year rate is close to seven and a half percent and the median price has jumped to over 400,000. So you've got buyers now facing monthly payments more than double what they would have just three years ago and unfortunately there are no easy solutions other than to wait. Now I realize the counter argument to that is well rental prices are sky high too and I get that.

The problem is we don't have folks getting out there overextended. A lot of folks are a lot of folks that are renting homes right now are locked in at much lower mortgages because they've had these properties a while and so they can afford to offer them at a little less and so when you factor in the high prices of homes plus the fact that we're at these more than double the interest rates we were three years ago on top of the fact that you're saying they've got you know $9,000 to put down on I think a $300,000 home, well they're way off of our 20% target. Even 10% would be $30,000 down and that would take their emergency savings down to zero which means anything comes out of left field and they're all of a sudden in a situation where they're going to take on credit card debt just to cover an unexpected expense. So I would just urge them listen I know you want to start building equity. I know you'd like to own your home. I know it doesn't make sense to you know feel like you're throwing money down the drain on rent and yet you all especially you know early in marriage having not you know avoiding that pressure of taking on something that you know is just way more than you can you can afford is just not the way to start out and so I would just you know not try to make that lateral move to a $300,000 home as much as we'd all you know love to have that starting out and say listen we've got to start small we've got to think apartment we've got to think rent we got to think keep our expenses low so that we can build up that emergency fund first to at least three months expenses and then go on to save for that down payment and hopefully we're in a situation a year from now 18 months from now where interest rates are lower and at least home prices have stabilized does that all make sense yeah no it does it's exactly what I was thinking and then the other thing is we don't know about the market it might it might go back down a bit yeah I mean the challenge here is and the the reason that you know the housing market hasn't dipped despite these high interest rates despite a looming recession is that we just simply don't have enough homes in this country we're about two to three million homes short you think about this I mean the uh the millennials are now reaching age 30 they're starting families they want single-family homes you've got a lot more people working remotely so they're moving out of these densely herb you know populated urban areas to the suburbs and they're buying single-family homes so all of that plus just not having enough new housing starts has led to the fact that you know despite all these factors I just mentioned housing prices have not only you know not come down they're still rising even though they're not rising as fast a rate as we saw last year so I would argue that even if we get into a recession unless it's a much deeper recession than we expect next year I don't think we're going to see much of a dip in housing prices the benefit though is they're going to have hopefully more time to save if they keep their lifestyle at a minimum and try to live really modestly and hopefully they will get some relief by you know these mortgage rates coming down and they won't have to refinance which that's going to cost them two to three percent of the cost of the mortgage which is just money down the drain if they have to you know go into a home and then two years later look to refinance it to take advantage of lower rates so I think you know the prudent approach is to to just start slow let's try to target that 20 down payment let's make sure that principal interest taxes and insurance payment that they ultimately have for a mortgage is no more than 25 of their take-home pay and let's make sure their big three food auto and housing stay under 65 of the budget if they can do those things they're going to set themselves up for success yeah well thank you I it's just nice to hear someone else say what I was thinking yeah absolutely let me do this Alex I'm going to send you a copy of that book that I mentioned Money and Marriage God's Way from Howard Dayton I want you to give that to them as a gift and see if they wouldn't be willing to as they're going through the engagement process see if they can work through that maybe a chapter at a time and just start getting ready to think about what it looks like to live on less than they earn and understand the power of giving that it can break the grip of money over their lives and that they need to understand God owns it all and that we're called to be faithful stewards I mean all of these things are just so important not only that but just beginning to talk about what lifestyle is God calling them to and what is giving going to look like as a married couple and just all these things that they're going to have to wrestle through if they can think about that now they will be willing to do that and they will be uh way ahead of the game when uh when they do actually get married so listen God bless you Alex stay on the line Amy will get your information we'll get that book Money and Marriage God's Way right out to you thanks for calling today uh to St. Louis Missouri hi Dean go ahead hi um I was wanting to know um like on an insurance claim check do you hide on that check I'm expecting a check to have my lunch read done and I'm just wanting to know do I hide on that check yeah I appreciate that question Dean I mean clearly you want to honor the Lord when in your giving and your proportionate giving you know if you're going to apply the principle of the tithe it's based on your increase so the question is is an insurance settlement an increase and I would say it's not uh because you had probably damage to your roof uh was it caused by a storm or something what happened yes okay yeah yeah so you had a storm come through you actually had a loss of value because you had a damaged roof you have insurance which is what a wise steward does to protect you against that risk the insurance is making you whole so you're at best staying even at worst you've lost a little bit of value in your house because you now have a repaired roof unless they're replacing the whole thing and then you may have a slight increase but the bottom line is that insurance settlement is to make you whole it's not an increase in any way and therefore if you apply the the principle of the tithe that doesn't apply okay all right thank you so much you're welcome thanks for calling today we appreciate you being on the program i'm rob west you're listening to faith and finance and we'll have more of your calls and questions on the other side of this break the number to call is 800-525-7000 we'll be right back as a faithful listener of this program you know that there's life-changing financial wisdom in god's word and faithfi is here to help you and millions of others learn to be good and faithful 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place where the texas is not that high in like in like in illinois right so will i be doomed i mean would i be okay if if i continue with those plans because i hear that pensions don't last forever and at this age you know it's kind of i'm i'm a really a little concerned about my future sure is that a good question can you sure oh absolutely maria appreciate that um tell me more about when you said pensions don't last forever i mean it it should last forever for the rest of your life uh what is it you're concerned about there i hear and i really need to get more into i don't know if you know about it but they say that if if my ex-husband passes lord protect them you know hope that never happens but if he does then the pension is over for me okay all right yeah so that so that certainly is a possibility and you'd want to get more information on whether there was a spousal benefit to that or whether that was on his life only um beyond that what other um and you said when are you going to start taking social security i already began uh due to the pandemic my cousin passed away due to covid so i 62 i know and i'm like i got scared everybody was scared back then so i said oh wait a minute i'm not gonna wait wait till you know later i will start collecting sick at 62 so yeah i i'm 65 now so i started collecting at 62 and you're taking your own benefit not your husband's ex-husband's benefit is that right right yeah i have to wait up for his because he's not sick he's not he's not he's barely started his t60 so yeah oh i got you yeah so that's not yeah and and you can take the higher of the two so you'll when the time comes you'll want to see whether that would be higher than your own benefit um you know taking up to 50 of his um okay so you're continuing to work and how long do you plan to do that to work yes the part-time i'm a caregiver so as long as people need me yeah part-time i'm healthy you know yeah okay and you're renting is that right i'm renting yes i had a we had a house for over 35 years and at the end of the divorce and everything found out that he owed the whole house so yeah we didn't have we lost the house yeah got it so okay you're now yeah and i see here in my notes that it sounds like you're rebuilding your credit tell me about that yes well since i um you know since i i talked since i touched the pension and they gave me half of his pension then um he also gave me 50,000 dollar debt that he you know he had he was up to his net with debts which i didn't even know so i'm like wait a minute i can't pay for that that's the only thing that's going to happen i can't pay for that that's not my debt so i filed for bankruptcy i see so now i'm building up my credit okay very good well here's the thing i mean is there any problem with you buying a townhouse in this season of life no i don't think so but not till you're ready so you being ready to buy a townhouse is going to take some time in that number one you're going to want to improve that credit which is not going to happen quickly it's going to happen by you being an on-time payer over time and hopefully you have maybe a secured credit card or some sort of card where you're putting a modest amount every month maybe even you know just 10 or 20 a month unless you're living on it but the key is that you're an on-time payer every month you're only using it for budgeted items and you're paying it off in full that's going to report you as being an on-time payer with active credit and that over time will improve your credit the problem is right now we've already got high interest rates at seven and a half percent you know more than double where they were three years ago and on top of that with you having poor credit because of the bankruptcy you're going to be paying a really high rate so i don't think this is the time for you to buy a house anyway which is probably okay because you need to get a little bit further along in saving now if you're putting money away for that down payment when the interest rates are better and when you've got more saved and hopefully when this this debt that you acquired through the divorce is gone well hopefully at that time you know it does make sense for you to buy something but even if it doesn't all you've done is put money into a savings account which can just be available if you ever need it down the road so i think at this point your key is just continue being an on-time payer let's rebuild that credit let's really watch your expenses set up a budget live by it and then just work as long as you can so that you can save and hopefully put something away so that you know as you continue to work you're building up a little bit of a nest egg that you could use to supplement your income down the road and maybe there's a higher benefit available as a spousal benefit on social security when the time comes but if not at least you've got the pension plus your income plus social security let's take advantage of this season while you have three income sources to save and invest for the future does that make sense yes yes it does thank you so much it does all right all right maria thanks for your call today may the lord bless you quickly to columbus uh janine i've got just a minute left go ahead expect to have these other costs for the home hey uh janine maybe turn down that radio a little bit and let's try again are you there a little bit all right let it look like that's gonna work out well folks let me just tell you how much i appreciate you being along with us today you know we covered a lot of ground today talked about a host of topics and i think at the end of the day the goal here is to recognize that our objective is faithfulness you know it's faithfulness to opportunity what have we been entrusted and what are we doing with it and our goal here on this program each day is to help you be that wise and faithful steward so when you stand before god and give an account and we all will you hear those words well done because you've looked to scripture you've held god's money loosely and you understand that it's it's a gift it's a blessing what we have because we can enjoy it we can provide for the needs of our families we can give it away to help others and when we look at it through that lens and focus on an eternal perspective well it allows it to be a blessing in our lives and certainly not a curse or anything like that whatsoever we appreciate you being along with us today on behalf of my team today lynn amy tahira and jim thanks for joining us today i look forward to talking with you again next time on faith and finance faith and finance is provided by faith buy and listeners like you