At Hill Investment Group, we recognize that when a few clients raise the same question, it’s likely that more have similar thoughts. To better serve you, we’re introducing a new segment in our newsletter where we’ll address common questions and how we approach them. To submit questions for future newsletters, email us at info@hillinvestmentgroup.com.

Hey Hill, I want to make a significant gift to charity. Is there anything I should think about?

So you’ve decided to make a significant gift to charity. Your generosity should be rewarded with smart planning! When we think of donating to charity, we usually think about writing a check from our bank accounts. But that is not always the most efficient strategy.

Here are a few different ways to give to charity to make sure you’re taking advantage of all the tax benefits available to you:

1.   Donate shares of existing stocks, ETFs, or mutual funds.

If you purchased a stock, ETF, or mutual fund that has significantly increased in value, and if you ever sold the position, you’d have a potentially large capital gains tax to pay. Alternatively, a great way to eliminate the tax liability is to donate the position to an official 501(c)(3) registered charity. The full current market value of the position on the day you donate the position is allowable as a charitable deduction if you itemize your deductions on your tax return.

Example: Historically, John and Jane give $10,000 to their local food bank annually. John bought shares of an S&P 500 ETF in 2002 for $1,000. The ETF is now worth $10,000. If John and Jane sell the ETF to make their current year gift, they would pay capital gains tax on the $9,000 gain. Instead, it would be more tax-efficient and require less out-of-pocket dollars to donate the ETF directly to the food bank. By doing so, they have accomplished their charitable goal of donating a full $10,000 and eliminated $9,000 in taxable capital gains. They would report a $10,000 charitable donation as an itemized deduction on their next tax return on Schedule A. Assuming John and Jane still wanted to own the S&P 500 ETF, once the donation is complete, they could use the cash they would have otherwise donated to repurchase new shares of the S&P 500 ETF.

2.   Donate a portion of your IRA (if you are old enough)

IRAs are great tax-deferral tools, but if you’ve ever taken any money out of your IRA, then you’ve felt the pain of reporting that distribution as ordinary income on your tax return. Beginning at age 70.5, the IRS allows qualifying individuals to send funds directly from their Traditional IRA to any registered 501(c)(3) charity of their choice without having to report the distribution as income on their tax return. 

Once an investor begins taking their required minimum distributions (RMDs) (which begin at age 73 or 75 for most), this strategy becomes even more effective and is referred to as a qualified charitable distribution, or QCD. The maximum QCD a taxpayer can donate from their IRA in 2024 is $105,000 (or $210,000 per couple).

Example: John just turned 73 this year and must take a minimum distribution of $50,000 from his IRA account. John also gives $15,000 to his alma mater each year to support their basketball program. Without any planning, John will be required to report $50,000 of additional income on his next tax return…his RMD. Instead, John donates $15,000 of his RMD directly to his alma mater. John will now only be required to report $35,000 ($50,000 – $15,000) of income on his tax return. Although John will not be allowed to report the donation as an itemized deduction, the donation will reduce his ordinary income dollar for dollar.

Q. What if I’m between 70.5 and 73 (and have not started taking my RMDs yet) – does a QCD still make sense for me?

It might! Take the following example:

Let’s revisit John and Jane from our first example. They give $10,000 to their food bank each year. John and Jane also have a fully paid-off home and, therefore, have no deductible mortgage interest. They also live in a state with low property taxes and only pay $5,000 in property taxes each year. In 2024, the standard deduction is $29,200 for a married couple. If John and Jane used cash or ETFs to satisfy their charitable goals, they wouldn’t receive any tax benefit because their total itemized deductions would only add up to $15,000, so they would receive the standard deduction of $29,200, regardless of their charitable donation. In this specific case, we might recommend making the donation from John or Jane’s IRA account. Why? Doing this would reduce the overall balance of their IRA, making the future required minimum distributions slightly lower. The benefit is admittedly very minor, but it is better than receiving no tax benefit at all!

3.   Open and fund a Donor Advised Fund at Hill

A donor-advised fund (or DAF) is a designated charitable investment account that is also considered a qualified 501(c)(3) charity. The account can receive donations of cash, stock, ETFs, or mutual funds. The donations can be pooled together and invested in the account until you recommend sending funds to any other qualified charity.

Example: John and Jane open a donor-advised fund and name it the “John and Jane Smith Charitable Fund”. They fund the DAF with $100,000 of highly appreciated Apple stock. They receive a $100,000 charitable deduction on the current year’s tax return. The Apple stock is sold within the DAF account and no taxes are realized (as the DAF is considered a qualified charity). The proceeds are reinvested in a diversified, balanced 60% stock / 40% bond portfolio.

John and Jane are unsure exactly which charities they want the funds to go to, so the account remains untouched for a year. A year later, John and Jane decide to send $5,000 from their DAF to the Salvation Army. While they will not receive a tax deduction for this $5,000 donation since they already received the tax deduction benefit for the original $100,000 donation. Further, John and Jane can name their two children as successor advisors to the DAF. In the event of their passing, John and Jane’s children would then decide which charities to disburse funds to.

A great way to utilize a donor-advised fund is to “bunch” deductions together in one year. If you give $10,000 to charity each year, there’s a good chance you aren’t surpassing your standard deduction. An alternative would be to bunch five years of donations together ($50,000) and make one large contribution to your DAF. This way, you’ll get a meaningful charitable deduction in the first year and still disburse $10,000 to your favorite charity for the next five years.

As you can see, when you’re trying to do a good deed, there are many options and considerations when making a charitable donation. If you’re considering a donation of any size, contact your Hill advisor to discuss the optimal strategy for your unique situation.

Hill Investment Group is a registered investment adviser. Registration of an Investment Advisor does not imply any level of skill or training.  This information is educational and does not intend to make an offer for the sale of any specific securities, investments, or strategies. Consult with a qualified financial adviser before implementing any investment or financial planning strategy.

Every four years, the United States gets consumed by the frenzy of presidential elections. It’s everywhere: TV, social media, and the minds of investors. Whether you’re on Main Street or Wall Street, the speculation about how the market will react to the latest poll or debate is impossible to escape. But there’s a simple truth that often gets lost in the noise—which political party is in office has little effect on the stock market.

For all the headlines and heated debates, historical data tells a clear story: a 60/40 portfolio has delivered average annual returns of around 8%, regardless of which party holds the White House. On top of that, election years are no different from non-election years. Although stock markets can show volatility during election years, and that can be uncomfortable, it doesn’t tell the whole story. Market returns during election years have also historically averaged 8%.

One of the most important lessons for long-term investors is that reacting to short-term political news is rarely a good idea. Trying to time the market based on election outcomes can lead to costly mistakes. Studies consistently show that missing just a few of the market’s best days—many of which often come after periods of volatility—can dramatically reduce your long-term returns.

For example, take this headline from Bloomberg back in 2022 predicting a 100% chance of a US Recession within a year.

For those keeping score the S&P 500 is up 61% as of 9/30/24 since that article came out.

Instead, the better course of action is often to stay invested. The stock market is priced at positive expected returns. In other words, over the long run, stocks are expected to grow in value. The market’s historical average return of 8% reflects this.

If you stay invested through election cycles, avoiding the temptation to sell or make drastic changes based on who wins or loses, you’re more likely to capture those long-term returns.

Whether it’s a blue wave, a red surge, or a contested result, research shows none of it changes the fundamental rules of investing. Stick to your plan, and let time—and the market’s resilience—work in your favor. Presidential elections come and go, but the market’s ability to deliver positive long-term returns remains.

Hill Investment Group is a registered investment adviser. Registration of an Investment Advisor does not imply any level of skill or training.  This information is educational and does not intend to make an offer for the sale of any specific securities, investments, or strategies.  Investments involve risk, and past performance is not indicative of future performance. Consult with a qualified financial adviser before implementing any investment or financial planning strategy.

At Hill Investment Group, we recognize that when a few clients raise the same question, it’s likely that more have similar thoughts. To better serve you, we’re introducing a new segment in our newsletter where we’ll address common questions and how we approach them. To submit questions for future newsletters, email us at info@hillinvestmentgroup.com.

Hey Hill, Is a Pre-Tax or Roth 401(k) Right for Me?

Picture this: you’ve just landed a new job, and you’re ready to dive into your benefits package. You’re at the 401(k) enrollment screen, wondering: “Pre-tax or Roth contributions—which one’s the better long-term choice?” Many of our clients face this same question, and the answer often depends on your financial goals. Here’s a quick breakdown to help you make an informed choice.  

Pre-Tax vs. Roth: What’s the Difference?

Think of it like shopping with a choice between a discount today or tax-free shopping later.  

• Pre-tax contributions lower your taxable income now, saving you on taxes this year. But you’ll owe taxes on those funds, plus any growth when you withdraw in retirement.
• Roth contributions are taxed upfront, giving you the benefit of tax-free growth and tax-free withdrawals in retirement.

How This Can Look in Dollars:

If you’re in the 24% tax bracket, contributing $10,000 pre-tax saves you $2,400 this year. With Roth, you pay that tax now but enjoy tax-free withdrawals on both the initial amount and any growth in the future.

Key Factors to Consider:

• Current vs. Future Tax Bracket: Are you early in your career and expecting your income to grow? Roth might make sense, letting you lock in today’s lower tax rate. But if you’re in a high-earning phase and expect a lower tax bracket in retirement, pre-tax could be more advantageous.

• Time Horizon:  The longer you have until retirement, the more valuable Roth’s tax-free growth can be. Younger savers often benefit from decades of compounding without a tax hit.

• Employer Match: Don’t forget that any employer match is usually pre-tax, giving you a mix of both types, regardless of your choice.

Need Help Deciding? 

This choice doesn’t have to be overwhelming. If you want help deciding between pre-tax and Roth contributions—or figuring out how much to save and where to invest—reach out. We’re here to help you get clear on what makes sense for your financial future.

Hill Investment Group is a registered investment adviser. Registration of an Investment Advisor does not imply any level of skill or training.  This information is educational and does not intend to make an offer for the sale of any specific securities, investments, or strategies. Consult with a qualified financial adviser before implementing any investment or financial planning strategy.