By Bill Stanczykiewicz, Ed.D.
Retirement planning is one thing. Retirement living is quite another. Whether you are putting the final touches on that plan or putting that plan into action, a new federal policy can help you save on taxes through your charitable giving, preserving more of your retirement funds for you.
The new federal tax law, known as the One Big Beautiful Bill or OneB3, creates a Universal Charitable Deduction (UCD) that allows all taxpayers, regardless of their income levels, to receive a charitable deduction for their charitable giving.
The UCD provides a deduction of up to $1,000 for individuals and up to $2,000 for married households filing jointly. There are at least three reasons why this new law is in place.
First, while people donate mainly because of their philanthropic values, many people also donate to receive a tax deduction. While taxes are never the first or only reason why people financially support nonprofits, taxes still matter. According to a new study from the Indiana University Lilly Family School of Philanthropy, 8 million people likely will start donating to their favorite charities because of this new tax policy.
Second, the new UCD allows all taxpayers to receive tax consideration for their charitable giving. Previous tax policy only rewarded wealthier Americans for their donations to nonprofits. Now everyone, regardless of income or the size of their charitable gifts can enjoy a tax deduction for the philanthropic contributions.
Third, the new policy helps senior citizens stretch their retirement dollars. Tax policy already allows seniors to donate some or all of their qualified or mandatory distributions from their retirement funds to nonprofits and not be taxed on those distributions. For donations to nonprofits that are not made from retirement funds, the new UCD provides another tax advantage for senior citizens.
If all of this sounds a bit complicated, perhaps a family member or a financial adviser who you trust can help you sort out the details. Importantly, there are many ways you can help the nonprofits you care about without donating money. You can volunteer, even online. You can promote the nonprofit and the organization’s cause, even through social media. You also can tell your friends and family about the nonprofits you support.
However, if you are making financial donations to nonprofit organizations, including your church, the new UCD can help you stretch your retirement funds further.
Bill Stanczykiewicz, Ed.D., serves as director and Rosso Fellow of The Fund Raising School within the Indiana University Lilly Family School of Philanthropy, where he also serves as senior assistant dean for external relations.