As a Procter & Gamble retiree, you have likely accumulated a significant portion of your retirement savings in the form of PG preferred shares. While these shares can provide a steady stream of income in retirement, they also present unique opportunities for charitable giving that can help you support the causes you care about while maximizing your tax benefits.

In this post, we'll explore some strategies for utilizing your PG preferred shares in retirement for charitable giving, including:

• Donating appreciated securities directly to charity
• Using a donor-advised fund to streamline your giving
• Incorporating charitable giving into your estate planning
•  Evaluating the tax implications of different giving strategies

The Benefits of Donating Appreciated Securities

One of the most tax-efficient ways to support your favorite charities is by donating appreciated securities, such as your PG preferred shares, directly to the organization. When you donate stock that has increased in value since you acquired it, you can avoid paying capital gains taxes on the appreciation while still claiming a charitable deduction for the full fair market value of the shares^[1].

For example, let's say you have PG preferred shares that you purchased for $50 per share several years ago, and they are now trading at $100 per share. If you sell the shares, you would owe capital gains taxes on the $50 per share increase in value. However, if you donate the shares directly to a qualified charity, you can avoid the capital gains tax and claim a charitable deduction for the full $100 per share value^[1].

By donating appreciated securities, you are effectively giving 20% more than if you sold the stock and then made a cash donation, due to the capital gains taxes you would owe on the sale^[2]. This allows your charitable contributions to have an even greater impact.

Streamlining Your Giving with a Donor-Advised Fund

If you plan to make significant charitable contributions over time and want to maximize the tax benefits, a donor-advised fund (DAF) can be an attractive option. A DAF is a charitable investment account that allows you to make an irrevocable contribution of cash, securities, or other assets and receive an immediate tax deduction, while retaining advisory privileges over how the funds are invested and distributed to charities over time^[3].

With a DAF, you can contribute your PG preferred shares in a single year, potentially itemizing your deductions on your tax return and exceeding the standard deduction threshold. The shares can then be sold by the DAF sponsor, avoiding capital gains taxes, and the proceeds can be invested for tax-free growth until you are ready to recommend grants to your favorite charities^[4].

DAFs offer several advantages over donating directly to individual charities:

• Simplicity: You can manage all of your giving from a single account, rather than keeping track of multiple donations and tax receipts^[4].
• Flexibility: You can recommend grants to any IRS-qualified public charity on your own timeline, whether that's right away or gradually over many years^[4].
• Investment options: Most DAF sponsors allow you to recommend an investment strategy for your contributed assets, potentially growing your charitable impact over time^[4].
• Legacy planning: You can name successor advisors or charitable beneficiaries for your DAF, ensuring that your philanthropic goals are carried out beyond your lifetime^[4].

While DAFs do have some administrative fees and minimum contribution requirements, they are generally much lower than the costs associated with setting up a private foundation. And by using a DAF sponsor associated with a major financial institution like Fidelity, Schwab, or Vanguard, you can benefit from low fees, a wide range of investment options, and expert guidance^[7].

Incorporating Charitable Giving into Your Estate Plan 

In addition to making current gifts of your PG preferred shares, you may also want to consider incorporating charitable giving into your estate plan. By making a bequest of your remaining shares to charity in your will or naming a charity as the beneficiary of your retirement accounts, you can reduce the tax burden on your heirs while leaving a lasting philanthropic legacy^[6].

One option is to use your PG preferred shares to fund a charitable remainder trust (CRT). With a CRT, you can transfer your appreciated shares to an irrevocable trust, which then sells the shares tax-free and provides you or your beneficiaries with an income stream for a set term or for life. At the end of the term, the remaining assets in the trust go to the charity or charities of your choice^[6].

Funding a CRT with your PG preferred shares can provide several benefits:

• Diversification: By transferring your shares to the trust, you can diversify your holdings without triggering immediate capital gains taxes^[6].
• Income: The trust can provide you or your beneficiaries with a steady stream of income, which may be especially attractive if your shares are currently generating more income than you need[^6].  
• Tax deduction: You can claim a charitable deduction for a portion of the fair market value of the shares you transfer to the trust, based on the present value of the remainder interest that will go to charity^[6].
• Estate tax savings: The assets in the CRT are removed from your taxable estate, potentially reducing estate taxes for your heirs^[6].

Another option is to name your donor-advised fund as the beneficiary of your retirement accounts or life insurance policies. This can allow you to support multiple charities with a single bequest while reducing the administrative burden on your executor^[4]

Evaluating the Tax Implications

Before making any significant charitable gifts, it's important to consult with a tax professional or financial advisor to evaluate the potential tax implications and determine the most effective strategy for your situation. Some key considerations include:

- Deduction limits: In general, you can deduct donations of appreciated securities up to 30% of your adjusted gross income (AGI) each year. If your gifts exceed this limit, you can carry forward the excess deduction for up to five years^[1].

- Itemizing deductions: To claim a charitable deduction, you must itemize your deductions rather than taking the standard deduction. With the higher standard deduction amounts implemented by the Tax Cuts and Jobs Act of 2017, fewer taxpayers are itemizing. Bunching several years of charitable contributions, such as through a donor-advised fund, may allow you to itemize periodically and maximize the tax benefit^[7].

- Donating cash vs. securities: While donating appreciated securities can provide additional tax savings compared to cash donations, there may be situations where a cash gift is preferable. For example, if you have securities with a low cost basis and plan to sell them in order to rebalance your portfolio, donating the cash proceeds may be more advantageous than donating the shares themselves^[5].

- Qualified charitable distributions: If you are age 70½ or older, you can make qualified charitable distributions (QCDs) of up to $100,000 per year directly from your IRA to charity. QCDs can satisfy your required minimum distributions without increasing your taxable income, even if you don't itemize deductions^[7].

Conclusion

As a PG retiree, you have a unique opportunity to make a significant impact on the causes you care about by strategically utilizing your PG preferred shares for charitable giving. By donating appreciated shares directly to charity, using a donor-advised fund to streamline your giving, incorporating charitable planning into your estate, and carefully evaluating the tax implications, you can maximize the effectiveness of your philanthropic efforts while minimizing your tax liability.

Of course, charitable giving is a highly personal decision that depends on your individual financial situation, values, and goals. By working closely with a financial advisor and tax professional who understand the complexities of charitable planning, you can develop a customized strategy that aligns with your objectives and helps you leave a lasting legacy of generosity.

At Savvy, we help clients like you navigate the financial challenges and opportunities that come with retirement from a major corporation like Procter & Gamble. Our team of experienced advisors can guide you through the process of developing a comprehensive charitable giving plan that maximizes your impact while ensuring that your own financial needs are met.

If you would like to learn more about how we can help you make the most of your PG retirement assets through smart, tax-efficient charitable giving, please don't hesitate to contact us for a complimentary consultation. Together, we can explore how you can use your success to make a meaningful difference in the world while securing your financial future.

Disclosure: Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation.  Information was obtained from sources believed to be reliable but was not verified for accuracy.  It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations. 

Savvy Wealth Inc. is a technology company.  Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”.  All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth.  The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.