Your retirement years are a time to kick back, relax, and enjoy everything you’ve worked so hard for all your life. This is the ideal time to invest in what matters most to you, and for many people, giving to charity is a big part of that.
However, charitable contributors enjoy benefits beyond the simple joys of giving back and helping the communities where they live. Perks like charitable tax deductions can help you save on tax burdens, make your income go further, and get the absolute most out of your retirement. Let’s dive into what you need to know to get started.
Understanding Limits and Laws Regarding Tax Deductions
Tax-deductible donations can help you lend purpose and meaning to life after retirement by helping others and supporting the causes you believe in. They’re also effective ways to reduce taxable income. However, it’s crucial to understand which options are allowable deductions, as well as follow the applicable rules.
Charitable tax deductions apply when donations go to qualified 501(c)(3) organizations. Examples often include religious groups, non-profits, and educational institutions. However, there are additional limits, laws, and regulations retirees should be aware of.
Know the applicable limits
Generally speaking, a person can deduct up to 60 percent of their adjusted gross income (AGI) when making cash donations to a qualified charity or organization. If you prefer to donate tangible goods like food, clothing, or other resources, you can deduct up to 30 percent.
Keep detailed records
If you plan to claim donations on taxes this year or in the years to come, keep careful records and charity receipts of your contributions in case they’re needed.
In order the claim donations of $250 or higher, the IRS will need acknowledgement in writing from the benefiting charity. This acknowledgment should cover whether you received any services or benefits in exchange for your donation, in addition to the full name of the organization and donation amount.
Give via qualified charitable distributions (QCDs)
If you’re older than 70 ½ and have traditional IRAs to your name, you can donate directly to a qualifying charity through a qualified charitable distribution (QCD). The total amount can also be up to $100,000 annually. This applies to your required minimum distribution (RMD), as well as reduces your taxable income.
Avoid shady deduction practices
Always follow protocol when it comes to tax-deductible donations. Resist the temptation to pad donation values or try to claim deductions on unqualified contributions. The IRS pays extremely close attention to charitable tax deductions, so breaking the rules could easily lead to penalties.
Maximizing Your Savings from Donations
Smart money management in retirement should always include financial strategies for maximizing tax-deductible donations. Careful, detailed planning can help you get where you ultimately want to be. Here are some actionable tips to keep in mind.
Carry donations over as needed
Looking at charitable contribution amounts that exceed your annual AGI limits this year? Not to worry. You can carry over any unused portion of the total amount for up to five additional years, making it possible to benefit from larger contributions over longer periods.
Consider bundling donations
Some people prefer to bunch-deduct several years’ worth of smaller donations at one time to help them exceed standard deduction thresholds. Consider whether this might be a viable way to make itemizing your own deductions worthwhile.
Understand applicable changes to Secure Act 2.0
In 2025 and beyond, Secure Act 2.0 brings new potential opportunities to the table if you’re 60-63 years old. These include higher catch-up contributions to 401(k) accounts. Consider how Secure Act 2.0 might impact your current deduction plans and finetune your strategy accordingly.
Advice for Donating to Charity
Looking for more good advice to help your generosity go further? Here are a few more tips for donating to charity, maximizing charitable tax deductions moving forward, and more.
Hold onto charity receipts
Thorough documentation is important when it comes to anything tax-related, but this is especially the case for retirees interested in itemized tax-deductible donations. Save any donation receipts you receive. Canceled checks, online confirmations, and credit card statements can also provide helpful proof of smaller contributions.
Write off appropriate expenses
If you volunteer or otherwise donate your time to qualified charities and organizations, consider writing off any related expenses. Think gas mileage, supplies you may have purchased for charity events, and similar examples. As with financial contributions, it’s important to keep detailed records and save receipts associated with these expenses.
Consider starting small
Giving to charity is definitely still possible and advisable on a modest fixed income. Embrace the idea of smaller donations that recur over time to make donating more affordable. In many cases, you can simplify tax preparation by obtaining an end-of-year summary from the charities you contributed to.
Donate select appreciated assets
If you’re engaged in retirement investing that involves mutual funds, bonds, stocks, and similar assets, you can donate assets directly to the qualified charities of your choice. Going this route lets you deduct the full market value of the asset in question while also avoiding capital gains taxes.
Enlisting the aid of qualified financial professionals can help you make smart decisions and maximize the benefits of your tax-deductible donations, as well. Ready to take the next steps and learn more? Contact our financial experts today and let us know how we can help!
