Micah Shilanski (00:00)
Welcome to the Plan Your Federal Retirement podcast. I’m your cohost, Micah Shilanski and today we are gonna jump into, albeit one of my favorite topics, and I think Luke, Luke is one of your favorite topics as well, is that fair?

DISCLAIMER (00:12)
Yeah, you know that. We both nerd out about taxes.

Micah Shilanski (00:16)
We do. We do. So I’ve invited Luke back on the podcast, Luke Elberly. He’s an advisor that works in our office. And I’ve really enjoyed Luke not only getting to know you over the last year or so, but also your understanding and knowledge of taxes and how it affects clients, right? Because there’s theoretical knowledge about taxes. It’s kind of cool. Well, I think it’s quite cool, but it’s not helpful. But the application side of this where you can apply it to individuals, that’s what can set someone’s retirement really apart from someone else’s.

DISCLAIMER (00:46)
Yeah, totally. And it’s one of my favorite thing is to help a client save money in taxes, right? It just feels good. It feels good when you get to save a bunch of money and not give it to the government because it just disappears, right? But more money for my clients makes me really happy. So yeah, I love talking taxes.

Micah Shilanski (01:06)
Now, if you’re worried about if we’re giving less money to the government, ⁓ what’s the government going to do to run on less money? Well, that’s what Luke and I were talking about before the podcast, but we’ll save that for another episode. This one is more focused on some changes that happened in the OBBBA, the One Big Beautiful Bill Act, which is our current tax laws passed in July of last year to 2025. And that’s our tax law that we’re under today. A lot of it was an extension of the TCJA, Tax Cuts and Job Act. But there were definitely some new provisions inside of there, some I like.

some I don’t like, and some you gotta know how to take advantage of going forward. So Luke, what do you think? You know what? I always love working with clients and not only helping them build their retirement plan, but showing that when they have enough left over, they’re taken care of, their spouse is taken care of, they got enough for their kids, but there’s a little left over, and showing them how they can do charitable contributions while they’re alive, and they can see the difference that that makes in people’s lives.

So what do think about we jump into the best deduction ideas for charitable contributions and how those work?

DISCLAIMER (02:09)
Love that. Yeah, absolutely love that because there’s some definitely some new changes because of the OBBBA that are going to impact people that gift charitably. There’s some really interesting nuances here. So I’m going to dive in and just start with probably I’m not going to say the best strategy just because every client is different. If you’re over 70 and a half, like

Micah Shilanski (02:35)
I gotta hit pause right there. All right. Cause cause we brought it up. was going to save that a little bit later, but let’s talk about the best strategy, right? Cause it’s a little click baiting. It makes it feel really good. You know, you see these Instagram rules or TikToks and like the best tax thing to do. And I love that thought, but our tax code is so complicated. Here’s what I define is the best. And Luke, you can push back on me if you have a different idea on this. The best tax strategy is the one that applies to you and you take advantage of, right? There’s a lot of different ones that are out there.

And the vast majority of them don’t apply to most people. So the ones that apply to you that help you achieve your goals, that’s the best one for you.

DISCLAIMER (03:11)
Yes, exactly. So I’m going to hit on a few different things, a few different tax strategies. Like Micah said, it’s not going to apply to everyone, but maybe you’ll get a little nugget here of something that you can make your charitable contributions more efficient for you. It’s great. You’re already making these contributions. Let’s have them be a little more efficient, right? So number one, if you’re over 70 and a half, there’s something known as QCD, a qualified

charitable distribution that you can make directly from your IRA. So remember, this is an IRA. Every time you take dollars out of it, let’s say you want to give $2,000 to your favorite charity. You’ve got two options, right? You could write yourself a check for $2,000. goes into your bank account. And then you write the check for $2,000 to the charity. Now, there’s one slight problem with that. When you write yourself a check for $2,000,

you distribute 2000 to yourself, you’re going to owe taxes on it, right? But the government says, the IRS says, instead of taking that money and then giving it to the charity for the bank, if you give directly from the IRA, if you’re older than 70 and a half, that is a non-taxable distribution. You distribute $2,000, it does not show up on your 1099R. It’s a tax-free gift.

to the charity from your IRA that’s normally taxable. Very efficient, pretty simple to use, fantastic way to make a charitable contribution if you’re over 70 and a half. So that’s number one.

Micah Shilanski (04:50)
Luke, can we press on that one just a little bit? Yeah, I love that one. But let’s talk a little bit more about like what what that actually means, because, know, we might be thinking, well, the money still gets to the charity. Like, is it really worth the hassle of doing this? Now, I’m a big fan of it. Right. But let’s say again, that example is you pull up four thousand dollars, you’re going to send four thousand dollars to a charity, really help make some improvements. I’m sure they could use them, which is great. And we’re to get this a little bit later. But you have this itemized deduction limitation. Right.

that if you’re not above a certain dollar amount, you’re not even really getting any extra benefit for that charitable contribution. Now it’s a little different because there’s a little bit of a floor we can actually step over this year. talk about that. But Luke, is it fair to say that if someone is doing that standard deduction and they give $4,000, they’re not really getting the full benefit they could of that charitable, from a tax perspective, that charitable contribution, right?

DISCLAIMER (05:42)
Got it. A hundred percent. Yep.

Micah Shilanski (05:44)
If you did it the way you’re suggesting it, which I love by the way, roughly if you’re in a 22 % tax bracket, that means you save $880 in taxes, right, by doing this. So this is the test that I always give. I like, I just said something up great. Now I gotta learn this new thing. Now I gotta get this thing figured out. I gotta fund it. I gotta send the checks. Now I can’t use my credit card. I’m not getting my miles for the donation. Like, is it really worth it? Okay, sweet. For this one donation is worth $880 in your pocket.

So then it just becomes, all right, it’s gonna take an hour of your time. So for one hour of your time to do this, you make $880. I don’t know, it seems like a pretty good hourly rate to me.

DISCLAIMER (06:23)
Yeah, I totally agree. I totally agree. that’s just a, yeah, especially if you are taking the standard deduction, which honestly, Micah a lot of our clients, a lot of people are looking at standard deduction, especially in retirement. We see a lot of clients because this itemize, this idea of itemizing, right? You add up these different deductions and if they eclipse the standard deduction, well, then you take the itemized deduction.

But now that standard deduction is over 30,000 for a married filing jointly couple. And if you’re above 65, you’re even going to get a greater deduction because of this OB-BBA. It’s tough for a lot of people to eclipse that standard deduction. So if you are in that situation, 70 and a half, and you’re taking the standard deduction, like you just said, there are real tax savings.

for writing QCDs directly from your IRA

Micah Shilanski (07:23)
Right. Now, Luke, forgive me. was writing down a note. You probably already mentioned this, but a pro tip, and again, I teach advisors this all the time to do this. It simplifies so many things. Once we started doing this is we open for our clients a separate account for this charitable money. So if they’re going to do a $4,000 donation, right? Maybe we’re going to take their RMD money and this counts as your RMD distribution as well, which is beautiful, right? As you were mentioning.

is we’re going to open a separate account for this. We’re going to fund that money in that separate account and we’re going to nickname that account. It’s great news at Schwab, can. Heard of Fidelity, it’s a pain in the butt. But at Schwab, we nickname it QCD IRA. Now, the reason we do that is it’s easier for us to track. But when your CPA does your taxes at the end of the year, this now separates out your normal distributions from your charitable distributions. And you have a much higher likelihood they’re going to file it correct on your taxes. Because even if you did the charitable contribution correct, if it was recorded

 incorrectly on your taxes, you still gotta pay the taxes on it. So we gotta make sure we’re reporting it correctly as well.

DISCLAIMER (08:22)
Yep. I’ve helped a client amend the return because they made, you know, it was something like a hundred thousand dollars in IRA distributions is what they had on their tax return. They had made twenty thousand dollars in QCDs. That’s account list because the 1099R did not specify that and they needed to tell the CPA. They kind of forgot about it. And I looked at their taxes later and luckily caught it. But yes, if you have two accounts,

This 1099R for the QCD IRA, I know that that’s all tax-free distributions because it was all made to charities. I love that idea. And like Micah said, we do that for every client that wants to engage in QCDs.

Micah Shilanski (09:05)
Sticking on the investment front, Luke, you wanna talk a little bit about the donor advice fund. Again, this is something I really love. It’s a great tool. I know I use it personally when my wife and I are doing charitable giving. Several clients use this same tool. It’s a little, in my opinion, it is a little more complicated than the QCD is, but it’s still a really good tool.

DISCLAIMER (09:24)
It is, but they’re getting a lot better, right? Technology’s coming along. There’s some really good donor-advised funds. ⁓ We use one with Schwab and it’s pretty simple to use. But what’s really great about it is that it’s a great way and a simple way to donate especially appreciated stocks through a donor-advised fund. So how this works is you open up, think of this as your charitable bank account, almost.

When you make a contribution though to this account, it is outside of your estate. It has to go to charities. You can’t claw back anything. So if you put in 10,000 worth of appreciated stocks or cash, that is only for charitable purposes. Can’t come back to your bank account. But you can put them in and the moment that you make that contribution, that’s when you deduct that or it adds to the itemized deductions.

on your tax return. It’s not when you distribute it from that account to charities. They call it grants. So for an example, let’s say I put 10,000 into a donor advised fund of appreciated stocks or cash, and it takes me two years to distribute those, that $10,000. It doesn’t matter when I make that $10,000 gift right away. That’s when it goes on the itemized section of my tax return.

And so a really good strategy with donor advised funds that we do for clients is that sometimes you can’t eclipse the itemized deductions. Let’s say you’ve got some local taxes, you’ve got some interest to itemize, but it only goes up to let’s say 20,000. Right? So even if you made it another 10,000 charitable contribution, you’re not going to eclipse the standard deduction. But wait, and let’s say you give about $10,000 a year. Right. Right. Right. And so you could just do that, write some checks.

and do that. what this strategy is called bunching, what you can do is instead you load up your donor advice fund with two or three years of contributions or distributions, charitable, gifty. So you put 20,000 in this year and you distribute it over the next two years. Well, now you’re eclipsing the standard deduction. You get a little bit more for that charitable contribution. Now know that’s a little more complex.

but it’s a really great strategy for people who are close to itemizing and that’s a big impact to them. That gift a lot to different charities.

Micah Shilanski (11:51)
whether you are close to retirement or planning for it years out. One of the top questions that I get is, Micah, how do I fill up my retirement forms and not make any mistakes? This can feel a bit complex and overwhelming. And I understand that you’re making some pretty serious decisions that’ll affect you for the rest of your retirement. Our how to fill up retirement forms series is your ultimate companion to navigating these forms. You are gonna learn how to avoid common mistakes.

You’re going learn how to fill these forms out correctly and even save money in the process. We will walk you through the most important steps so you can safeguard your financial future. Sign up today for this video series at PlanYourFederalRetirement.com slash retirement forms. That’s PlanYourFederalRetirement.com slash retirement forms. Don’t let the paperwork stand in the way of your retirement. Let us guide you through it step by step. Until then.

Happy planning. So, Luca, if I heard you correctly, we put some numbers on this, right? I just like the numbers. I’m going to simplify this. Let’s say your standard deduction was $32,000 just to make some math easy. And your example, right, instead of them having a $30,000 so they didn’t qualify for itemized, right, because $32,000 standard is going to be higher, they did $40,000. They did an extra $10,000 charitable contribution, so $20,000 to charity. So $40,000 worth to get itemized. So if you will, there’s $8,000 over the threshold that they wouldn’t have received as a benefit.

Well, if I take 8,000 times, let’s say a 22 % tax bracket, what’s that? 1700 bucks. So for the strategy, it’s say do $1,700 in taxes. But in addition to that, you didn’t have to pay taxes on the capital gain of that $20,000 that you donated. So on that, that 20 grand that you donated, let’s say you had 15,000 of basis in that account and it’s grown to 20,000. Well, if you sell that, you got to pay taxes on that 5,000 again.

But now when I put it in that donor advice fund, Luke, as you know, now I don’t have any taxes on the gain, right? So that’s another savings of 15 % of the 5,000 bucks, which is what, $750 plus the $1,700 savings right here on that extra $8,000 you wouldn’t be able to deduct. Now what’s that like 24, $2,400 of tax savings. So let’s say this takes you two hours to set up. Okay, what’s that, an hourly rate of $1,200 an hour? I like that hourly rate.

DISCLAIMER (14:14)
Right?

Not bad. Not bad at all. So it is such a good way. If you’re charitably inclined and you have appreciated stocks, it’s such a great way to gift. It’s an analysis, right? Because you got to go, well, if I don’t do this, what is my tax impact? If I do this, what is my tax impact? If I’m over 70 and a half and I have appreciated securities and I have the option to do QCDs, which is better, that’s where a little more nuance comes in.

and I geek out about it, I get really excited about it. But it is a great way. I love it. It’s a great way though to reduce, to do, you’re already gifting, right? You’re already gifting, you’re just taking advantage of being a little more efficient in that charitable gifting. The other thing I like about charitable ⁓ donor advice funds is you can have a plan for if you pass away, right? So if you pass away, you elect a successor.

Micah Shilanski (14:48)
can see the spreadsheets coming.

DISCLAIMER (15:12)
or you can name certain beneficiaries to get a remnant of the remaining balance. And even in your estate plan, in your IRA, you can leave some dollars to your donor advise fund at the end of life and have that be a beneficiary. And so now from your IRA, if you want to leave some at your death, you can put those dollars into the donor advise fund and it’s distributed according to your will or according to your succession plan.

within that donor advice fund, really fun estate planning comes into play with these accounts as well.

Micah Shilanski (15:46)
I’d to give an example too on this for savers. This isn’t just for people that have saved a bunch and they have this massive appreciated stock. Here’s something that I do. My wife and I do personally, we use a donor advice fund, a little too young for a lot too young for a QCD account. So we use a donor advice fund. But I use it to what’s called reset my basis in my investments. So what does that mean? So let’s say I’m going to save X amount of dollars, let’s say 10,000, 20,000, whatever that amount is a year, into a non-retirement account.

So I saved $10,000, I saved 20 grand, and then it grows, it appreciates, the stock market went up in value. But every year, my wife and I like to donate and give charitable contributions as well. So I have a choice, right? I could either add a pocket, add a cash, I could give those charitable contributions. Again, I got to itemize deduction, standard deduction limitation, I got to get over that. But then I’m still having this appreciated stock. So after several years, when my ⁓ after tax money has grown and I have this appreciated stock, what I do is…

I change how I make my charitable contributions. take my charitable money, instead of giving my charitable money out of my checkbook to a charity, I actually put it in my Schwab brokerage account. You say, Micah, you’re not a charity. I know that. All right. But I put it in my Schwab brokerage account, so it’s in my account. But then what I do is I take the same value that we’re going to donate. I take that highly appreciated stock in there and I move it into my donor advised fund.

Now, let’s say I’m still, I am just a standard deduction. It doesn’t allow me to itemize. Was this a win? Okay, well, if I had $10,000 of appreciation that I moved into this donor advice fund, that’s $10,000 I didn’t have to pay 15 % capital gains tax on. That’s 1500 bucks, right? So by knowing and applying the tax law, I’m able to save Nickel-Dime quarters thousands of dollars in taxes and still be charitable minded.

So there’s really great strategies you can use over time. And again, that’s a good one for savers, retires that already have the money. Fantastic, we can still use it. If you’re building wealth, good way to do that.

DISCLAIMER (17:44)
Exactly. I love that little tidbit in there, Micah. And also, 2026, we have a new tax law about making charitable gifts, right? So, if you’re single, you can deduct on top of the standard deduction, $1,000 in charitable gifting. If you’re married filing jointly, it’s $2,000 that you can add to the standard deduction. Now, you’re limited to those, right?

But the really important caveat is that these deductions do need to be made directly to a charity. If you’re making them to a donor advised fund, they don’t count for that extra 1000, 2000 on top of the standard deduction. That’s weird. It’s a very interesting nuance thing. do have to say.

Micah Shilanski (18:36)
Why don’t you say that one more time? that is a little weird. So say it one more time for our listeners.

DISCLAIMER (18:41)
Yeah, so if you’re taking the standard deduction, right, you can, if you’re single, make up to a thousand dollar charitable gift and add that to the standard deduction. If you’re married, filing jointly, you can make up to 2000 of a charitable gift and add that to the standard deduction, but it needs to be directly to the charity. It can’t go by way of a donor advice fund.

very interested. This is brand new before you could make, you know, even if you made a thousand, $2,000 deduction, it only came in and you’re itemizing, right? But this year it’s on top of the standard deduction for 2026. Very clear about that. Next five.

Micah Shilanski (19:23)
Yeah, so when you’re filing your tax return for last year, right, 2025, this isn’t applying, it’s 2026 and going forward. The other thing is we used have this crazy thing called a P’s limitation and it kind of came back in some format, unfortunately, I’m not a fan of this, but the administration didn’t ask me my opinion when this went through. Basically, what they did is they put a limit, if you’re going to itemize, they put a floor that you have to get over, which is 0.5%. You have to get over that floor, otherwise you’re not able to count charitable deductions.

So if you are an itemized person and you give to charity and you give $10,000 charity, depending on your income, you’re not going to be able to make that full deduction. again, that’s just kind of a heads up. your AGI was $200,000, that 0.5 % is roughly a thousand dollar floor. So if you made a $5,000 donation, a thousand of that doesn’t count. Only 4,000 of that counts. So it is a bit of a penalty to charities.

DISCLAIMER (20:22)
Yes. So there are additional calculations to what is the best route, how much savings would I get, but still these strategies remain the same. They’re just a little nuanced in 2026. The other thing too with itemizing that I’ll mention quick. know Alaska, this won’t affect you much Micah. Good platy. Great platy, right? Move to Alaska is a good platy technique. I’ve heard Micah say more than once.

Micah Shilanski (20:49)
Good people move to Alaska though. That’s what makes Alaska really cool. So if you’re not a good person, please don’t come. But if you’re a great person, it’s an amazing place.

DISCLAIMER (20:55)
But in Minnesota, you know that we have a high tax rate, a local state tax rate. Now before the deduction, you itemize your, when you do these itemized deductions, you can deduct a certain amount of your mortgage up to a certain balance of your mortgage. I believe it’s like 750,000. I mean, it’s a large mortgage that you conduct, deduct the interest. So that adds to the itemized deductions. On top of that, there’s something known as SALT, which is a

state and local taxes. Now that was limited to 10,000 in 2025. So typically, let’s say you have a mortgage of 10,000, right? And then you paid a bunch in state taxes while it’s capped at 10,000. So you’re at a $20,000 itemization, right? Still well short of the standard deduction for married filing jointly. Well, this year, 2026, that 10,000 limitation is jumping up to 40,000. So

For some people that pay a lot in state and local taxes, 2026 could be a year that you end up itemizing. When you go through this with your CPA, when you’re looking at this, it could be a year of 2026 of itemizing. Now, any kind of charitable contribution above that 0.5 % of your AGI, now every dollar you contribute above that, if you’re already itemizing, that’s going to decrease your taxes dollar for dollar.

above the point five percent. So a new a new rule there as well with the OBBBA that also comes into play.

Micah Shilanski (22:29)
Decrease your taxable income. Yeah, yeah. Fantastic. With that, Luke, is this is where your previous strategy, and again, you mentioned it of a charitable giving, but bunching comes into effect with charitable giving, right? This is where it’s even more powerful to do that. Or if I know I’m going to have a high income year coming up, sometimes with the clients, what we’re going to do is we bunch, we save their charitable contributions when we know we’re going to have a high income year, and then we kind of do more that particular year.

This is just a tax game to play. Just like most games, I don’t like to play them unless I know the rules. ⁓ So I know how I can win at the game. And that’s exactly what this is. So whenever you go down this path, there’s generally more than one way to get to the finish line. And some finish lines are a lot nicer than others in the tax game. So just because TurboTax allows you to do it, this is not a dig on TurboTax, right? Just because the tax offer allows you to do it does not mean that was the best option for you at the time.

Planning is the big thing. Not a lot I can do about 2025. There’s a lot I can do about 2026 and even more I can do about 2030.

DISCLAIMER (23:37)
Yeah, I

Micah Shilanski (23:38)
Awesome. Guys, thank you so much for your time and listening to our podcast. We enjoy talking with us. I really hope this has been beneficial for you as well. Again, our goal is help another 1 million federal employees with retirement. We want great information going to federal employees to empower you to make good decisions about your retirement. Luke, thank you so much for joining me yet again. To our listeners, till next time, happy planning.