Contemporary Financial Strategies for Biblical Christian Stewardship

Welcome to Money by the Book!
Timeless Biblical Principles of Stewardship
Although there are an abundance of books and websites available to Christians who are seeking biblical answers to financial issues, Money by the Book adds a somewhat unique source of information. While based on a foundation of biblical financial principles and stewardship, Money by the Book also provides practical contemporary strategies and advice for making wise financial decisions that apply to the unique financial issues of today.

Donating Retirement Assets

Donating Retirement Assets

Retirement Assets and Taxes

Depending upon the size of your estate, as much as 60 percent can be taxed when you leave retirement assets to family members.  That means and IRA valued at $100,000 could be reduced to only $40,000 for your loved ones.

What’s important to remember about any qualified retirement plan is that no tax has been paid on this income.  While you can strive to defer taxes as much as possible but at some point taxes will need to be paid either by the employee who set it up or the beneficiary when withdrawals are made. 
When a beneficiary receives an inherited IRA the balance may be subject to estate taxes as much as 35 percent or more plus income taxes when making withdrawals. 

With the help of a skilled fiduciary financial planner, you can set up a withdrawal process that minimizes or stretches out the tax burden. However, there is another tax-savvy strategy which generous families should consider.

An IRA can serve as a strategic way to support churches, ministries, or charitable causes that are important to you.  Many 401k, 403b and other qualified plans that are holding retirement assets are eventually rolled over into an IRA.  Current tax law still provides significant incentives for what is termed as a qualified charitable distribution from and IRA.  The IRS defines a qualified charitable distribution as a gift:
  • Made by an individual age 70 ½ years of age or older
  • Paid out of an individual’s traditional or Roth IRA;
  • Given to a qualified charitable organization
Because charitable gifts made from an IRA are not subject to income taxes and also count towards the required minimum distribution for the year, donating assets can oftentimes be more beneficial.  Staying with the inherited IRA example above, a charitable distribution would result in the full $100,000 being realized by the church or charitable organization to help fuel the mission and vision.

Individuals cannot receive a charitable tax deduction for distributions made from an IRA.  The primary tax benefit is not having to include the distribution in your gross income and avoiding income taxes.  Taking a charitable deduction is viewed as a double benefit and is prohibited.

Donating retirement assets as Strategic Kingdom Giving

"...For the people of this world are more shrewd in dealing with their own kind than are the people of the light. I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings."  Luke 16:8 (NIV)The Parable of the Talents (Matthew 25:14-30) encourages believers to consider how to multiply what God has entrusted to them. If we can distribute 60 percent more of our assets to Kingdom purposes leveraging current tax law, we are being wise stewards of the resources God has entrusted to us.

What are Donor Advised Funds?

What are Donor Advised Funds?

The Lord encourages us to be shrewd in how we handle our worldly wealth to advance His purposes on earth.  In doing this we are strategically exchanging that which is temporary for what is eternal.

One shrewd way to handle our worldly wealth is to establish a Donor Advised Fund (DAF).  The IRS defines a DAF as, “a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors.  Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account.”

Advantages a Donor Advised Fund (DAF)

There are many advantages for setting up a DAF.  These include, but are not limited to:
  • Ease of Set-up – There’s limited paper work (4 pages or less) and no need for an attorney to get involved. 
  • No Minimum Balance Requirements:  Once the DAF is established there is no minimum balance required to sustain the DAF.
  • Customization – You can name the DAF giving account just about whatever you want and make recommendations for grant distributions when you want for charitable purposes important to you.  One aspect of a DAF that can be viewed as a disadvantage is that the sponsoring organization has legal control over the assets and their distribution.  An individual or individuals can simply advise the sponsoring organization of their distribution recommendations.
  • Anonymity – When funds are distributed from the DAF, they will come from the name of the DAF vs. any specific person(s).
  • Tax Advantages and Benefits – Individuals receive an instant tax deduction for the current year when contributing to a DAF because the account is maintained by a 501(c)(3) organization.  The deduction counts regardless of when distributions take place out of the DAF.  There is no tax filing requirement for the individual(s) as the sponsoring organization will handle those.  Contributors to the DAF can deduct up to 50 percent of their Adjusted Gross Income (AGI) for cash contributions and 30 percent for non-liquid appreciated assets.  A DAF can process appreciated securities without the donor having to pay capital gains tax.  In addition there are no excise taxes as compared to that of a private foundation.
  • Investment Options:  A sponsoring organization will provide a variety of investment options to grow the balance of the DAF that can be used to further charitable purposes.

Limitations of a Donor Advised Fund (DAF)

While a DAF is much less complex than a private foundation there are some disadvantages to keep in mind:
  • Limited Control:  While an individual or individuals can advise the sponsoring organization of fund distributions, ultimate control remains with the sponsoring organization.
  • Annual Fees and Charges:  While they may be minimal compared to a variety of giving vehicles, the sponsoring organization will charge for ongoing maintenance and administration of the DAF.
  • Irrevocable Giving:  Once a contribution has been made it cannot be returned as the sponsoring organization retains control of all giving.
  • Minimum Contribution:  Most sponsoring organizations have a minimum single contribution amount of $1000 or higher to the DAF.

How to Set Up a Donor Advised Fund

To establish a DAF, you must find a credible sponsoring organization.  Since there are many choices for sponsoring organizations to help you set up a DAF, I recommend contacting your financial advisor if you have one.  You can also contact a favorite charity or ministry you currently support for recommendations.

In a February 2011 Forbes.com article it was reported that “there are approximately 30 national organizations that sponsor DAFs. Some are the charitable arm of for-profit financial services institutions such as the Fidelity Charitable Gift Fund, the Schwab Charitable, and the Vanguard Charitable Endowment Program. Others are independent sponsoring organizations (i.e., they are not affiliated with a particular financial institution or charity) such as the National Philanthropic Trust and the American Endowment Foundation” (Brill, 2011, Forbes.com).  There are also a number of local community foundations that sponsor DAF’s.

Once you’ve identified credible sponsoring organizations, be sure to compare any fees and requirements.

Leaving a Legacy

Establishing a DAF is a great way to embark yourself on a life of generosity and to become more like Jesus Christ.   Once set up, it will serve as a constant reminder of your purpose on earth, to live generously and to advance God’s purposes for His glory.

Jim Elliott, a well-known missionary martyred in Ecuador said it well:  “He is no fool who gives what he cannot keep to gain what he cannot lose.”