Tax Reduction Strategies that Help Our Neighbors
A Donor Advised Fund (DAF) is a powerful tool for individuals who wish to leave a lasting legacy by supporting causes like the Chester County Food Bank. With its tax-efficient advantages and flexibility, a DAF can help you make a meaningful impact on our community for generations to come.We sat down with Chester County Food Bank Board member Kevin McDermott, Financial Planner of Delphi Wealth Management Group to discuss two tax strategies for legacy giving.
DONOR ADVISED FUND (DAF)
“A popular philanthropic vehicle, a Donor Advised Fund can be set up to benefit the Chester County Food Bank. A DAF is a simple, tax efficient investment account. It allows donors to make a charitable contribution, receive an immediate tax deduction, and recommend grants from the fund over time to charities,” says Kevin McDermott,
Here’s how a DAF works:
- Make a contribution from personal assets, including cash, stock, real estate etc.
- Immediately, receive the maximum tax deduction allowed by the IRS.
- Name the DAF Account, designate the advisors and name the Chester County Food Bank as beneficiary.
- Your contribution is placed in the DAF investment account, which grows, tax-free.
- At any time, you can recommend grants from the fund to Chester County Food Bank or any other charity.
“New tax laws have changed the nature of donations,” said McDermott. “Now charitable contributions may not be deductible if someone chooses to file their taxes using the new higher standard deduction instead of itemizing. The DAF allows an individual to lump several years of charitable contributions together to make itemizing their deductions worthwhile even though they can spread those contributions out over a number of years.”
QUALIFIED CHARITABLE DISTRIBUTION / QCD
McDermott said, “Another option for tax-free giving is available to retired folks who designate the Chester County Food Bank as the recipient of the Required Minimum Distribution (RMD) from retirement accounts or IRAs each year. The IRS requires a withdrawal of a portion of your retirement account each year, whether or not you need it for living expenses.
Per the IRS, you must take your first required minimum distribution for the year in which you reach age 72 (73 if you reach age 72 after Dec. 31, 2022). However, you can delay taking the first RMD until April 1 of the following year. If you reached age 72 in 2022, you must take your first RMD by April 1, 2023, and the second RMD by Dec. 31, 2023. If you reach age 72 in 2023, your first RMD for 2024 (the year you reach 73) is due by April 1, 2025.
The RMD is considered taxable income. To avoid reporting the RMD as taxable income, a wise and generous idea is to designate these withdrawals (or a portion of them) directly to the CCFB. The amount becomes a Qualified Charitable Distribution, a mutually rewarding strategy for giving.
Recommending a DAF/QCD to the Chester County Food Bank
- Log in to your donor advised fund account or contact your fund administrator to submit a grant request.
- Designate your request to: Chester County Food Bank Tax ID# 27-0887311
If you choose to support CCFB and wish to be acknowledged, please notify us at give@chestercountyfoodbank.org of your incoming DAF grant.
To find the right provisions for your tax situation, please contact your financial representative or tax attorney.
To support the Chester County Food Bank, visit Ways to Give or call 610-873-6000 x104 to speak with Jeffrey Howard, Director of Development & Marketing.