This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

The idea of charitable bunching may allow you to increase your tax savings by contributing multiple years of charitable deduction in one year.

The “super bunching” concept is aimed at tax years where you may have an unusual amount of taxable income that is not likely to reoccur in future years. In the event that this occurs, a charitably minded taxpayer would simply shift the timing of their deductible charitable expenses by bunching them together within the same tax year.

Using the Dunham Donor-Advised Fund, you can make multiple-year contributions into the fund, receive an immediate tax deduction, and then decide how and when your charitable gifts will be distributed over the course of many years. Those contributions can compound tax-free for years before being distributed to a specific charity. This can allow for more significant contributions in future years and leave a positive impact for your family to follow.

Case Study

Mary, age 63, is retiring and has decided she will be active in a charitable organization she and her family are passionate about. She will donate her time and wealth to the group to make a more substantial impact during her retirement. She wants to donate $35,000 a year to this group.

Mary has done exceptionally well in her IRA and 401(K) accounts. In fact, her accountant is suggesting that Mary convert $500,000 of her rollover IRA to a Roth IRA. In his view, it would create a better tax situation when Required Minimum Distributions begin. He explained that she would leave a better-taxed asset to her child when they inherit the Roth IRA.

Her tax on the $500,000 Roth conversion will be 37% federal and a 7% state tax for a total of 44%. That would be a tax on the Roth conversion of $220,000.

Mary met with her financial advisor, and they decided on two strategies. They would use Qualified Charitable Distributions (QCD) when she turned 70 ½ for that portion not converted to a Roth IRA. Before she turned 70 1/2, they would use the concept of “super bunching” for the current tax year to offset the income tax of the Roth conversion.

Through “super bunching,” instead of donating $35,000 a year for the next seven years from her checking account until she turns 70 ½, where she would then use Qualified Charitable Distributions from her IRA, she would instead place $245,000 ($35,000 X 7= $245,000) in her Dunham Donor-Advised fund today. This would give her an immediate deduction and a tax savings of $107,800 - almost half of the taxes due!

For the next seven years, she will donate $35,000 from the Dunham Donor-Advised Fund to her charity while the amount remaining in the account compound tax-free, which can mean more contributions in future years. The concept of “super bunching” can be used anytime there is a year where you have a considerable amount of taxable income that is not likely to reoccur in future years.

This can be due to unexpected income, the sale of a business, real estate, or any asset that has been highly appreciated.

To learn more, speak to your financial advisor. They will explain what options might be ideal for you and your family’s individual situation.

Find out how the Dunham Donor-Advised Fund can help you leave a positive impact for your family to follow.

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DAF Disclosures:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

Federal and state laws and regulations are complex and subject to change, which can materially impact your results. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy or completeness of the information provided. Dunham Associates & Investment Counsel, Inc. (“Dunham”) cannot guarantee that such information is accurate, complete or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.  Always consult an attorney or tax professional regarding your specific legal or tax situation.

All financial decisions and investments involve risk, including possible loss of principal. The market value of the Dunham Donor Advised Fund (“Dunham DAF”) is not guaranteed by UI and may fluctuate depending upon investment results.

Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

A donor advised fund (“DAF”) is a separately identified account that is maintained and operated by a section 501(c)(3) organization, and is not a registered investment company.

The Dunham DAF is powered by University Impact (“UI”), a registered 501(c)(3) nonprofit in the United States who manages the charitable aspects of the Dunham DAF.

UI charges fees to the Dunham DAF for administrative services in accordance with the Fee Schedule as outlined in Appendix A of the UI Donor Advised Fund Agreement (“Agreement”). Accounts are required to maintain a $1,000 minimum balance and are subject to support investment fees as explained in the Agreement. A list of current fees and initial gift minimums is available upon request. UI reserves the right to change its fee or minimum policies at any time. There may be additional fees charged by the Financial Advisor that is separate from UI’s administrative and impact investment fees.

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Assets contributed to the Dunham DAF (once liquidated, if applicable) will be invested in the Dunham Asset Allocation Program sponsored by Dunham.  Investment allocations may be changed according to Dunham’s standard policies and procedures.  UI may hold up to 5% of the Dunham DAF assets in non-interest bearing cash at any time.

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