Exclusive Interview: Felix Kwan of Edelman Financial Engines

Year-End Tips for Charitable Giving

Ric Edelman: Well, it is toward the end of the year. This is holiday season here on The Truth About Your Future, probably in your home as well. And as we get to the year end, a lot of folks are thinking about taxes and all the issues you've got to deal with. There's one other big thing that people are focusing on at your end, and that is generosity. Last year at the market highs, people were very generous. Now, a year later, stocks and bond markets, they're down 25%. Real estate's beginning to fall; crypto's way down. What does this mean for philanthropy? To help us figure it all out, I'm happy to bring onto the program my friend Felix Kwan. He is executive director of financial planning at Edelman Financial Engines. Felix, it's great to have you on the show.

Felix Kwan: Great to be here. Thank you.

Ric: So what's the impact of the market mayhem in 2022 on charitable giving this year?

Felix: Definitely it's down. People are just not in as much of the giving mood now as they've been in previous years.

Ric: It's kind of understandable, of course, if your own circumstances are challenged, the value of your account is a lot lower than it was a year ago. There's a lot of uncertainty. We've got a new Congress coming into power in January. We have continuing uncertainty about the economy. Certainly everything going on around the world - the war in Ukraine, troubles with China, kind of natural that people are hesitant to being as generous as they were last year. But it's kind of ironic, isn't it, because at the very moment you're feeling uncertainty and discomfort about your personal finances, the need for you to contribute to charity is greater than ever because so many people are struggling so much because of what's going on in the economy and the world.

Felix: I would totally agree. And I think this is where we have to remind clients or friends and family of that, especially now, there's different ways in which you can give. You know, just even being a volunteer locally, you just donate your time and there's other outlets besides just traditional giving of investments.

Ric: Well, in fact, you know, you're hitting on something important. Many folks are new to charitable giving. Where do they even begin?

Felix: It normally starts with "how do I lower my taxes?”. So we go back to the foundation of having just a comprehensive financial plan, understanding everything about their goals for situation. That way we have some basis to go in and say, you can do this, you can do that. So that way, they know that they can still continue their giving. The strategies? Now a lot of that changes.

Ric: Describe that for us, Felix, When you say that the strategies for giving change, what are some of the strategies that you're talking about?

Felix: Yeah, a lot of ways. The most common, I think, would be a donor advised fund. A donor advised fund gives you the ability to gift stock mutual funds. Crypto could be anything as a donation instead of cash. You still get the tax deduction. The donor advised fund is powerful because it allows you to give the asset. You can then invest the money into mutual funds. And then you can grant the money to a charity.

Ric: And the advantage of them is that once you make the contribution, you immediately get the tax deduction, but you don't have to actually distribute the money to the charity immediately. You can delay it for years and allow the money to sit invested in mutual funds. So it's a great way for you to make contributions that give you medium tax breaks without having to make an obligation to give into charities right away. Are you finding a lot of interest in donor advised funds?

Felix: Not really. It's very rare. A lot of people don't come in walking, Hey, can I get a donor advised fund? 

Ric: Are there any tax rules that people need to be aware of in terms of what they donate or how much they donate? 

Felix: Yes, it depends on your income. So, for example, if you give cash donations, it's 60% of your adjusted gross income. And then sometimes you'll have non-cash. Like if I have furniture we want to donate as non-cash, that is at 30% of your adjusted gross income. So that's why I think it's really important to work with tax professionals to make sure that we are staying within certain limits.

Ric: So give me your closing thoughts. What final takeaway do you have for our listeners? What do you want our listeners to think about as they're contemplating charitable contributions as we approach year end?

Felix: You know, people just need to be reminded just how important all these organizations, this is like their greatest time of need. We could all be doing more. You can do this.

Ric Edelman: That's Felix Kwan, executive director of financial planning at Edelman Financial Engines. If you want to learn more about charitable giving this time of year, you can reach out to Edelman Financial Engines at PlanEFE.com/Ric. Felix, thanks so much for being with us on the show today.

Felix Kwan: Thanks, Ric.