Managing 401(k) drops: Lemonade from lemons
It is important to know right now that your donors may be feeling the squeeze with their 401(k)s and IRAs. In many cases, account balances can fluctuate significantly due to market swings, especially for those heavily invested in stocks. This may leave your donors feeling a little (or a lot) on edge.
Now that donors are paying more attention to their 401(k)s and IRAs, you’ve got a real opportunity to remind them about the benefits of naming a charity as the beneficiary of a retirement plan. Here’s an example of why this is so advantageous:
When a donor names your organization as the beneficiary of an IRA, you’ll receive the entire IRA balance without paying any income tax. This, in turn, means that the full value of the account stays with you. By contrast, if the donor’s children were to inherit the IRA, they would have to pay ordinary income tax on withdrawals. What’s more, under the SECURE Act, they are required to withdraw the entire balance within 10 years, potentially pushing them into higher tax brackets and reducing the after-tax inheritance.
On the other hand, if your donor’s estate plan leaves the appreciated stock to children, the tax result is very different. Here’s why: When the children inherit the stock, it’s subject to a “step-up in basis” to its fair market value at the date of the donor’s death. This means that if the donor’s children sell the stock immediately after inheriting it, they won’t owe capital gains tax on the appreciation that occurred during the donor’s lifetime. Of course, if the donor were to leave the stock to your organization, you would also avoid capital gains tax, but because the IRA is a far less tax-efficient asset for heirs, it’s better to allocate the IRA to charity and the stock to children.
Please reach out to the community foundation for ideas and tips about communicating this opportunity to your donors to help you grow your endowment assets. Now is the time to encourage donors to name your organization as the beneficiary of IRAs. It’s a strategy that maximizes the after-tax value received by both a donor’s heirs and your organization.
Run, don’t walk: Why planned giving can’t wait
The news from the stock market has not been rosy! Investor confidence is rattled and many households are reassessing their financial priorities. Despite increasing challenges brought on by 2025’s turmoil, it’s important to remember that your organization and other charities are presented with a unique opportunity to lean into planned giving discussions.
Certainly many donors are feeling less secure about their finances amid a challenging economic climate and the recent stock market downturn. Understandably, in this environment, donors may be more hesitant to make large gifts or even maintain previous levels of annual giving, preferring instead to preserve liquidity and safeguard their immediate financial well-being.
This is where planned giving comes in. Planned giving offers you and your colleagues a compelling alternative because donors can make a significant, lasting impact without affecting their current cash flow through bequests or beneficiary designations that take effect in the future to support your organization’s endowment.
Unlike annual gifts, planned gifts are less vulnerable to short-term market volatility and provide a more predictable, stable revenue stream—critical for organizational resilience during uncertain times. By proactively engaging donors in thoughtful planned giving conversations, you can help your supporters feel confident about their legacy and financial security, while also ensuring your organization’s long-term sustainability despite today’s economic headwinds.
Please reach out to the community foundation! We’re always happy to offer suggestions and resources to help you maintain momentum with your planned giving program.
On notice: Three observations about pending tax legislation
Over the last few weeks, our team at the community foundation has talked with dozens of nonprofit leaders and people who serve on charities’ boards of directors about the so-called “Big Beautiful Bill” (H.R. 1) that passed the House of Representatives by a narrow margin on May 22, 2025. Understandably, many nonprofit organizations are concerned that this legislation might impact their work.
Among many troubling elements are provisions that could affect fundraising strategies to attract annual gifts, major gifts, endowment gifts, and planned gifts. Here are three provisions that are especially important to watch.
Corporate giving
What’s the provision?
The proposed legislation introduces a 1% “floor” on corporate charitable deductions, meaning corporations could only deduct charitable contributions that exceed 1% of their taxable income, up to the existing 10% cap.
What’s the concern?
This provision could discourage corporate giving, particularly for companies that typically donate less than 1% of their income, as their contributions would no longer be deductible unless they surpass that threshold. The uncertainty over whether corporations can deduct the full value of their contributions or only the amount above 1% adds further ambiguity, potentially leading to reduced corporate support for charities.
Is it all bad news?
Many corporations support charities through sponsorships that come out of their marketing budgets, not their charitable giving budgets. The proposed legislation does not impact a corporation’s ability to deduct marketing expenses.
Private foundation giving
What’s the provision?
The pending bill would restructure and increase taxes on private foundations, specifically the net investment income tax. The bill replaces the previous flat rate with a graduated structure, imposing higher rates on larger foundations—up to 10% for those with assets exceeding $5 billion.
What’s the concern?
The proposed increase in tax liability could potentially reduce the amount of funding available for charitable grants, as private foundations may have fewer resources to distribute after accounting for the higher taxes. Additionally, increased compliance costs associated with these new tax structures could further divert funds away from charitable activities and into administrative overhead.
Is it all bad news?
Donor-advised funds could become an even more important source of funding if the new laws cause some donors to shift away from private foundations as their primary organizing structure for their philanthropy. In the case of donor-advised funds held at the community foundation, this could be good news because the community foundation actively works with donors to use their donor-advised funds to keep charitable dollars flowing to charities in our community.
Individual giving
What’s the provision?
The proposed legislation affects individual giving by extending provisions of the Tax Cuts and Jobs Act of 2017 that were scheduled to sunset at the end of this year. Specifically, the standard deduction is slated to remain high under the proposed legislation, as is the estate tax exemption.
What’s the concern?
The chilling effect on charitable giving of a higher standard deduction and higher estate tax deduction is likely to continue.
Is it all bad news?
The bill includes a modest charitable deduction for non-itemizers, allowing up to $150 for single filers and $300 for married couples. Collectively, these changes potentially could make fundraising more challenging for charities. What’s important to keep in mind, though, is that nothing is set in stone–yet. Significant changes to the bill are likely as the Senate starts reviewing the bill in June. The process could stretch into July or August as both the House and Senate work out their differences before sending the bill to President Trump for signature. We’ll keep you posted as the situation develops. We are here for you!
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This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.