Giving Appreciated Stocks

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To find a Certified Kingdom Advisor in your area, visit faithfi.com and click Find a CKA. Stock markets have seen record highs in the past couple of months. Is it a good time to take profits?

Hi, I'm Rob West. Well, it certainly can be a good time to take profits if you've seen your investments go through the roof recently. And today I want to tell you about a way to realize those gains for God's Kingdom. 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. Okay, with the recent historic highs in the markets, it's a great time to think about giving appreciated stocks to your church or other ministries you're passionate about. Donating stock instead of cash to qualifying organizations can greatly benefit both the donor and recipient. Of course, not all ministries are prepared to accept stock gifts, but there's an easy solution for that problem and I'll tell you about that in just a little bit. Rest assured, most organizations that are equipped for stock donations will quickly liquidate the donation, turning it into cash. Now, why give stocks, especially appreciated ones, to a ministry instead of cash? Well, it usually allows you to give more because the gift is tax-deductible and you won't have to pay capital gains tax.

It's usually, but not always, the best way to make your gift. If the stock you want to donate has appreciated in value, making a direct gift to a charity or your church is best. If you've lost money on the stock, it's best to sell it, take the loss, which is deductible, and then donate the cash proceeds from the sale. Let's take a closer look at the tax benefits of donating stock. Depending on the type of organization you're giving to and your adjusted gross income, a portion of the donation will be deductible on your taxes. Again, if the stock you want to donate has increased in value, as so many have lately, you won't have to pay capital gains taxes if you donate the stock. However, it's important to wait at least a year after purchasing a stock before donating it. That way you can use its fair market value as an itemized deduction.

And since you'll pay less taxes, you can give more to your church or other ministries. Here's an example of how this works. Let's say a couple of years ago you bought 50 shares of Mach Industries. You paid $20 a share and your total cost was $1,000, but the value has shot up since then to $40 a share, so your investment is now worth $2,000.

Yes, it happens. If you sell those shares, thinking you'll donate the after-tax proceeds to your church, you'll have to pay capital gains taxes. Under the top long-term rate of 20%, it would work out like this, $2,000, the current value of the stock minus the basis or original cost basis of $1,000 is $1,000. Now subtract 20% for capital gains taxes and it leaves you with $1,800 that you can donate to your church. But if you donate the stock directly to your church or other ministry, they would net the full $2,000 value and you could deduct that amount, again with some restrictions. Now as I mentioned earlier, there is a potential problem with directly donating stocks. Some churches or ministries may not be set up to receive non-cash gifts. They may ask that you sell the stock first and then donate the proceeds. We've already gone over why that's not the most efficient way to give. You can solve this problem by bringing in a third party, such as the National Christian Foundation, to handle your donations. And there are many advantages to this.

The first is that it gives you even more flexibility for avoiding taxes. You can set up a donor advised fund at NCF, which they call a giving fund. It's been likened to a charitable checking account. You put cash, stocks or other assets into your giving fund at NCF. They liquidate and distribute those assets in cash form to the ministries of your choice.

In the case of donated stocks, NCF will sell them and do all the paperwork. Now you've probably been thinking all along, hey, this is great, but I can't donate enough in stocks in any given year to get past the standard deduction. And for 2024, the standard deduction is $14,600 for single taxpayers and $29,200 for married taxpayers filing jointly.

Those are big hurdles. But with a giving fund at the National Christian Foundation, you can bundle your deductions and add up to more than the standard deduction in a given year. Now, various rules limit the deductions you can take for a stock donation.

So be sure to check with your tax professional. All right, your calls are next. The number 800-525-7000, that's 800-525-7000. And if you prefer not to call, keep in mind, you can always send us an email at askrob at faithfi.com. We'll be right back on Faith and Finance.

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That's faithandinvesting.com. Hey, thanks for joining us today on Faith and Finance. All right, it's time to turn the corner, take your questions today on anything financial. I've got lines open. If you have questions, we'll try to give you some answers.

We'll do it in a way that's encouraging, that's biblically grounded, and hopefully can help you make a financial decision with confidence. Call right now with lines open, 800-525-7000. Again that's 800-525-7000. Let's go to Pennsylvania. Terry, you'll be our first caller. Go ahead. Yes. Hi, Rob. I am calling on behalf of a situation that I know concerning what is the statute of limitations for a collection agency to collect monies?

Yeah, it's a good question, Terry. There are statutes of limitations for debt collection, but depending on the state that you live in and the type of debt, they can vary substantially. So most of these statutes of limitations will range from three to 10 years, but some can be longer, such as with federal student loans, you'll need to determine which statute applies to your particular debt. If a statute of limitations expires, the debt is considered time barred, and that's a term, and you can't be sued to collect it. However, a collection agency can continue to contact you regarding the debt with certain legal restrictions. For instance, they can't call you at work if you tell them not to. In most cases, they can only call you between 8 a.m. and 9 p.m. There's actually a complete list of restrictions that you can read up on at the Consumer Financial Protection Bureau, their website at CFPB.gov. You'll just want to look for the collection restrictions. But really, what I would say is if the debt is legitimate, then you need to work to get on a payment plan with that collection agency, let them know how much you can pay back each month and be prepared to share your budget with them.

But to your question, there are statutes of limitations, but they vary pretty widely based on your situation. It was for a person's credit card. Okay. Yeah.

So here's the bottom line. I mean, I realize there's probably a lot of pieces and parts to this in terms of how it came to be and what your relationship is to it. I would say if it's legitimate debt, I'd try to get on a payment plan to get this paid back. Obviously, that's going to help to repair your credit. But to the question about statutes of limitations, yes, there are statutes of limitations.

They do vary pretty widely, so you'd have to explore that a bit more depending upon your state. But hopefully that's helpful to you, Terry. If we can assist you further along the way, don't hesitate to reach out. To Alabama.

Hi, Milton. Thanks for your patience. Go ahead. Yes. I have a question about 401Ks from previous employers. Okay. So what would be better to move the money from one 401K company to another, for example, in Vanguard and Fidelity, what would be the best way to decide what to do with the money that is from previous employers in those 401Ks? Very good, Milton.

That's a great question. So it sounds like you have at least two. Do you have more than two 401Ks from previous employers? Yeah. It might be more than two.

I know there are, but those are the two major ones that I know. Yeah, very good. If you were to take a guess on the total amount of retirement funds you have in previous employer retirement plans, what would you guess that amount is?

I would say less than $50,000, but it's somewhere around there. Very good. Excellent. And then my last question is, do you have a 401K available at your current employer? Yes.

Okay. So what I would do, given that you've got multiple 401Ks and you've got a current employer's plan, I would likely roll that into all of those previous employer plans, roll those all into your new employer's plan. And here's why I would do that. Number one is, you don't want to leave them there because you're going to have to keep up with two, three, four plans with smaller amounts in them, and it's just a lot of hassle to stay on top of them, make sure they're invested properly, and so forth. And so by putting them all in your current employer's plan, it just allows you to make that your focus so that you can get it invested properly, you can stay on top of it, make sure you're selecting investments that are appropriate for your age and your risk tolerance and your proximity to retirement, all of those things that would drive how conservative or how aggressive you might be in selecting those investments. But inside the 401K, it's a little simpler than if, for instance, you were to roll all those old plans into an IRA. Because in the IRA, you could basically choose any stock bond or mutual fund or exchange traded fund you want, which is kind of nice, but at the same time, it's a little more challenging because you've just got so many options and you've got to figure out what to do with it. Inside your current 401K, you probably have a pretty simple menu of investment options to choose from, and it's probably not going to be difficult. Even if you choose what's called a life cycle or a target date fund, it's going to be pretty simple to get that invested.

And I kind of like the idea that everything would be in one place. And then once you separate from that employer to retire eventually, then I would roll it out to an IRA, and at that point, you're going to have enough money that you could hire an advisor to manage that for you. But I don't think that's necessary inside the 401K.

So if you want to go this direction, your next step, Milton, is to call your HR department, or if you have the phone number, call your plan administrator and just confirm that they will allow you to roll old 401Ks from previous employers into their plan. Most of them do. Not all, but most. And if so, that's the direction I would go. But does that make sense? Yes. What about if I still don't have the 401K offer from my current employer?

I have to wait like one year, so what do I do in the meantime? Okay. They may let you go ahead and roll it in, and even though you're not able to make new contributions, have you asked that question? No, I know that I'm not eligible at this point to use a 401K, but right now I got those assets just dormant in the other employer. Okay.

Very good. So you've got a couple of options there. One is you could check with the employer and just say, listen, I realize I can't make new contributions, but can I open it for the purpose of rolling this in?

If not, then you'd either have to leave them where they are and get them invested, pulling up the investment options that you have and choosing those inside those plans, or you'd have to consolidate them into an IRA. How far away are you from being able to reach that one year mark? Pretty much starting now, so it's one year. Oh, okay. Yeah, so you're still brand new in that.

All right. So if you can't open the plan and roll these in, then you'd either have to go into those existing plans and choose from the menu of options and get that invested, or the other option if you want to put them all in one place is to roll them all to an IRA and then just choose an investment vehicle. You could use a target date fund or you could use a service like Soundmind Investing to help you pick the investment options, but that would allow you to get the money out immediately from the old plans and get them into one IRA, so it's all in one place, and then you'd have two accounts. You'd have the IRA with your old plans, and then when you're eligible, you'd have your new 401k, and I would do that probably at Fidelity or Schwab, one of the discount brokerages. Oh, great.

So that's pretty much what you're telling me. I have already one 401k in Fidelity, so I want to go to all my other ones and just move into Fidelity and move into an IRA. That's right.

Yeah, just contact Fidelity, tell them you want to open an IRA, and then you'd give the account number to each of the planned administrators, and then they would help you roll that money in. Sounds great. I appreciate it. All right. Thank you, Milton. Appreciate your call, sir.

God bless you. We're going to take a break, folks. Much more on the way, plus your phone calls, 800-525-7000. You can call right now.

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You're looking to give more effectively, perhaps beyond what you thought you could have, or maybe you're just trying to stay on budget in light of these runaway prices on just about everything. Give us a call, 800-525-7000. Let's head back to the phones.

We're going to head out to Ohio and welcome Tony to the broadcast. Go ahead, sir. Thanks for taking my call. Sure.

I just have a couple of questions. So I've got a couple of investments with my investment manager. Everything comes out to about 750 grand. I'm being charged 1%, which I'm assuming is the standard fee, but then I was speaking with another company and they mentioned that most of my investments were primarily focused on six ETFs, and based on that, there's not a lot of management involved and I shouldn't be charged 1%, more like 0.8% is what they charge. So I was just calling to get a second opinion on that because what they say kind of makes sense. It looks like I just got lumped into some standard ETFs, so there's not a whole lot going on there. So I just wanted to get a second opinion about that.

Yeah. It's a great question, Tony, and I think you have a fair point here. First of all, yes, 1% would be normal and customary. I would say it might even be slightly, if it's going to skew one direction or the other, it's probably on the lower end for three quarters of a million dollars. So I would say for a money manager and investment advisor who's managing this portfolio, I'll say actively. Now, that's not meaning that they're trading it every day or even every month, but there's active oversight and management of this, then that would be very appropriate. I think the case to be made is what your friend pointed out, and that is if it's really, truly in practice a passive strategy where they've just picked some broad ETFs that represent the broad market and obviously they're bringing their skill set to bear to determine kind of which indexes you're in, which ETFs, but it's just kind of a set it and forget it and you're just kind of capturing the broad moves in the market. You're right. That would warrant in most cases a lower fee just because there really is an active management going on.

So now I think the next step is to raise the question and just say, hey, you know, let's talk about this. Is this really in effect the passive strategy? And if so, is one percent on three quarters of a million dollars, $7,500 a year appropriate?

I don't think it is. Now what they may come back in is say is, wait a minute, yes, we're using ETFs, but we have an active strategy that, you know, allows us to move in and out of certain sectors and we're dialing up, you know, international, we're dialing down bonds when the interest rates were rising. And, you know, so even though we're using low cost ETFs, there's an active approach here. And I could get on board with that because ETFs are a very effective way to manage money even on an active basis. The question is, is that's what is that what's happening here?

Or did they just kind of buy the broad market and park it? And then I think if that's the case and the history on the account will tell you that pretty clearly, then I think you do have a case to be made here that you might be overpaying. Does that all make sense? Yes. Yes, it does. And thank you for that.

I'll definitely follow up on that. The second quick question I have is, so on my current mortgage, I owe about 50 grand. The house itself is worth maybe 380. I have the ability to pay it off this year and I'm trying to figure out, should I pay it off? Because I have it at a two point, I think two point seven five percent rate is what I have.

So I'm trying to see, do I pay it all? Yeah, it's a phenomenal rate. And I think there might have been a spike in envy out there from some folks hearing you describe that rate now if they've secured a mortgage anytime soon, you know, being at seven. But, you know, here's the way I was approached that number one is where would the funds come from and would paying it off kind of deplete sufficient reserves for you to have some flexibility in your financial life?

That's my first question. I have fairly liquid cash right now, so I could considerably say that by the end of the year. Yes, I could pay it off if I wanted to. But would you still have, let's say, six months worth of emergency reserves? Oh, definitely. OK, great. So it's not going to get you to a place where you're just illiquid even if you pay it off.

So that's number one. OK, number two is there's the financial side, which obviously at that rate, there's not as compelling a reason to pay it off financially because you can do better today even in CDs, right? You could, you know, almost double the rate of return over the next 12 months, let's say.

You could buy a 10-year Treasury at, you know, four point, I think it's four point three right now and hold for 10 years and, you know, do better even after taxes. But there's also the non-financial side of this, which just says, you know, I've got a conviction, perhaps just personally or even from the Lord, me or my wife or both of us to be debt-free regardless of the financial side of this. Is that a part of this? No, we are. We're actually debt-free. I mean, besides the mortgage, we don't have any debts at all.

No car loans or credit cards, nothing like that. No. Yeah. You know, this is really I mean, you could go either way. I mean, I think if you guys aren't itching to get this paid off, I'd probably, you know, keep that money invested, make sure you are investing it and doing something with it to get a good return on the money and then just out of current cash flow, just work to accelerate that mortgage payoff. And you guys will probably have that knocked off and in a few years anyway, you've got a nice low rate and let's keep that money working for you. If at the end of the day, it's simpler and you just kind of like the idea of saying we're completely out of debt, then I would go and pay it off and not look back and you probably won't regret that. I've never gotten a call from somebody in all the years I've been doing this that said, hey, I paid off my mortgage and man, I've regretted it ever since.

I just don't get that call. But in your case, just given what that money could be doing elsewhere, whether it's in high yield savings CDs or invested in the market or you could find a way to get it into more of a tax deferred environment like a Roth IRA or something like that. I kind of like that option just given how low this interest rate is. You still have some time between now and retirement. Certainly we want the house paid off by retirement, but you're probably going to do that way before that anyway. So I'd probably come down on the side of let's hang on to the mortgage, let's accelerate it out of current cash flow and let's deploy that cash in a way that makes sense in light of your goals and priorities.

But if you guys decided, either you or your wife, we'd rather just knock it out, I wouldn't object whatsoever. Tony, thanks for your call today. We appreciate it, sir.

Well, we covered a lot of ground today. Hey, before I let you go, let me remind you, if you're looking for an advisor that shares your values, we recommend the Certified Kingdom Advisor designation. Fifteen hundred men and women across the country have met the high standards in character and competence, but they've also been trained to bring a biblical worldview of financial decision making to their professional advice. They've also had pastor and client references. You can find a CKA in your city when you head to faithfi.com and click find a professional. That's faithfi.com and click find a professional. I hope you'll come back and join us next time on Faith and Finance when we go back to God's Word and look for biblical wisdom for your financial decisions. Faith and Finance is provided by Faithfi and listeners like you.