Investment Assets

A document with a chart.There are several investment vehicles through which UMB accepts donations, including appreciated stock, mututal funds, and other investment assets. Shares and cash gifts can either be given outright, or given as income-producing gifts.

Read below to learn about each investment vehicle type, or learn more about income-producing gifts.

Stock Gifts

Giving appreciated stocks and mutual funds (owned for more than one year) immediately adds a tax advantage over making the same gift in cash. The income-tax benefit is identical to that of cash: the donor can deduct the Fair Market Value (FMV) of the gift if they choose to itemize deductions. Giving stocks and mutual funds, however, provides the added benefit that the Long-Term Capital Gain (LTCG) is not recognized on their tax return, so the donor avoids any LTCG tax due on the appreciation. Put another way, there is virtually no other use than charitable giving that a taxpayer/shareholder can realize 100 percent of the value of their asset; the shareholder must first sell the shares to access their value, triggering LTCG tax.

Example: Dr. Donor owns $10,000 worth of stock which she bought for $5,000 more than one year ago. If she wanted to use the stock to pay a tuition bill, she would have to sell it first and subsequently pay $1,000 in LTCG tax (20% of $5,000 gain), yielding only $9,000 for tuition. If she instead decides to use the stock to fulfill charitable gifts, she transfers the stock which the foundation sells and applies the cash proceeds to her gift—the full $10,000 since the foundation is a 501(c)(3) tax-exempt organization.

If giving appreciated securities yields additional tax savings for the donor, why don’t more donors give stock and mutual funds?

A 2016 study of high net-worth donors found less than 6 percent use stocks or mutual funds in their giving. The main reason is probably inconvenience—giving cash is simpler and faster. To give stock, a donor must instruct the investment company to transfer the shares, and the transfer usually takes one to three days. Giving mutual fund shares may involve additional steps, and it is common for mutual fund gifts to take one to six weeks. Thus, year-end stock gifts should be initiated prior to Dec. 27, and year-end mutual fund gifts should be initiated prior to Nov. 15.

To initiate a gift of stock or mutual funds to the University of Maryland Baltimore Foundation, for the benefit of UMB or any of its seven schools, please use our stock transfer instructions and contact us if you would like assistance or have questions.

Gift of IRA Assets

The Opportunity of the IRA

IRAs represent many things, but primarily they represent a lifetime of earnings that have not yet been taxed or spent. To put these earning to use, the IRA account holder must first pay income tax on the distribution, meaning they have to withdraw more than the amount needed to yield enough after-tax funds. These rules apply whether the IRA is earned or inherited, whether distributions are made during life or at death, and account holders are required to take taxable distributions after age 70.5 and onwards, whether the income is needed or not.

Charitably-inclined IRA account holders, however, have a powerful new option thanks to the 2017 Tax Cuts and Jobs Act: they can realize 100 percent of the value of hard-earned savings by making non-taxable Qualified Charitable Distributions, and fulfill charitable bequests through IRA beneficiary designations and thus give more tax-advantaged assets to family. These two giving options, making gifts during lifetime out of an IRA and naming charitable beneficiaries, can be used as independent giving strategies or in tandem, in small or large amounts, depending on the year-to-year needs and priorities of the donors. The opposite side of this sheet describes these options in detail, along with information needed to take action and give from an IRA.

Why do people typically save for retirement? To ensure lifetime needs are met after the income-earning phase of life, and to provide the comfort and security against unexpected illnesses, long-term care, or other potential high-expense needs. Beyond these basic needs, retirement savings allow the owner to spend money on family, travel, hobbies, or whatever else they want to enjoy. For some, giving charitably is a priority among that list of things that bring enjoyment, mission fulfillment, and satisfaction to the owner.

Fortunately for many, investments and other income sources in retirement mean that retirement savings are in excess of annual and lifetime needs. At age 70 1/2—whether the IRA owner needs the income or not—they IRS mandates a Required Minimum Distribution (RMD), which many IRA owners would not take if it were not required. Unfortunately, ordinary income tax must be paid on this and all future RMDs, as with any distribution from the account…except for two:

Lifetime IRA Gifts at Age 70½ and After

After an IRA account holder turns 70½ , they can give up to $100,000 directly from their IRA to one or multiple charities, using a Qualified Charitable Distribution form issued by the IRA administrator. These gifts provide:

  • The charitable distributions are non-taxable to the owner
  • They satisfy all or part of the RMD of the owner

While they do not add to the taxable income of the donor, they also do not provide a charitable deduction, which in fact restores a lost deduction if the donor now takes the higher Standard Deduction and no longer itemizes deductions.

Who else may no longer itemize deductions? People who have paid off mortgages and people who pay high State and Local income Taxes (SALT). In each of these cases, making charitable gifts out of the IRA presents a win-win for the donor and their charitable organizations.

Fulfilling Bequests through IRAs

Most people name spouses, family members, other individuals, or their own estates as beneficiaries of their IRA (or name no beneficiary at all). Some people name charitable organizations as part or whole beneficiaries of their IRA accounts. What are the reasons to do this?

From a tax planning perspective, IRA assets are among the worst to inherit or direct to one’s own estate, because the entire amount is subject to income tax upon distribution, even if charitable gifts are subsequently made or directed by the owner or inheritor. On the other hand, assets like stocks, businesses, real estate, and personal property like artwork, are inherited at a stepped-up basis and not subject to any income tax due to the transfer. If the donor were to give IRA assets to charities and the other assets to heirs, they likely will pass 100 percent of the value of their estate on without any reduction to taxes. Whatever personal and charitable legacies are fulfilled, they are fulfilled at the highest amount by giving the taxable assets to non-taxable charities, and the nontaxable assets to taxable individuals.

Besides tax efficiency, naming one or more charities beneficiary of an IRA is easy, being executed through an online or mailed form to the IRA administrator. If the IRA owner later changes their mind, or needs the IRA assets for their own use during life, they can simply spend down the IRA as needed or change the beneficiary form.

And, if they find they do not need the RMD income after age 70½ , they can put their IRAs to charitable use and get immediate results. IN this case, they are in essence giving away IRA assets early which would only be later inherited by the charity anyway—it is triggering the gift early thanks to the Qualified Charitable Distribution described above.