Latest news with #taxbenefits
Yahoo
8 hours ago
- Business
- Yahoo
One of the most attractive — and sometimes secretive — ways the wealthy donate money could soon get even more popular
A provision in Trump's tax bill could make donor-advised funds an even more popular form of giving. DAFs are especially attractive to the ultrawealthy because of big tax advantages. Some experts told BI they're seeing DAF donations among the wealthy change in the post-Trump era. As President Donald Trump's "big beautiful bill" moves through Congress, a provision hiking taxes on private foundations could make another form of philanthropy even more attractive: donor-advised funds. Donor-advised funds, or DAFs, are accounts where donors can contribute funds, immediately get a tax deduction, and "advise" on where to donate — and they are becoming increasingly popular. As Daniel Heist, a professor at Brigham Young University and a lead researcher on the 2025 National Survey of DAF Donors, put it, "they're growing like crazy." Donors can contribute non-cash assets, like appreciated securities or crypto, to DAFs, and the funds grow over time. BI spoke with academics, DAF sponsors, and nonprofits about why major donors use DAFs, how the tax bill and Trump are changing the calculus, and the risks of the "opaque" form of philanthropy. Sponsoring organizations, which are themselves public charities, operate DAFs. Some of the largest are connected to investment firms like Fidelity, Vanguard, and Schwab, though others include community foundations or religious organizations. Technically, donors don't control the funds in their DAF, but practically speaking, they can direct the money to any accredited charity. "As long as you're following the rules of the DAF provider, you should always have those recommendations honored," Mitch Stein, the head of strategy at Chariot, a technology company focused on DAFs, said. Private foundations have to distribute at least 5% of their assets annually for charitable purposes, but DAFs don't have payout requirements. Donors also don't report their gifts to individual organizations on their taxes, and instead report that they gave to the DAF. If Trump's fiscal agenda passes in the Senate (it has already passed in the House of Representatives), it would raise the current 1.39% tax on private foundations' investment incomes. The rate would rise to 10% on foundations worth $5 billion or more, to 5% for those worth between $250 and $5 billion, and to 2.8% for those worth between $50 million and $250 million. It wouldn't change for foundations worth less than $50 million. "There already was a substantial amount of momentum toward donor-advised funds, and a bill like this would only magnify that," Brian Mittendorf, a professor at Ohio State University who has studied DAFs, told BI. Though people across net worths use DAFs — Heist called them a common "mid-range philanthropic tool" — they're particularly attractive to the rich. The 2025 survey of DAF donors found that of 2,100 respondents, who were surveyed between July to September 2024, 96% had a net worth of more than $1 million. "I definitely see a trend away from private foundations," Heist said. Rebecca Moffett, the president of Vanguard Charitable, a prominent DAF provider, said she's seeing the same pattern. The main draw has to do with taxes, according to data and the experts. In the 2025 survey, 62% of donors said tax advantages were a strong motivation for opening a DAF account. Jeffrey Correa, Senior Director of US philanthropy at the International Rescue Committee, told BI that there's been an "explosion" of major donors giving through DAFs. The ability to contribute non-cash assets is also a big factor. Donating appreciated assets lets the donor avoid paying capital gains taxes (in the 2025 survey, 51% of respondents said reducing capital gains taxes was a big consideration). Convenience is another benefit, experts said, since DAFs are more streamlined and cheap than private foundations. Then there's the question of privacy, beyond how DAF donations show up on tax filings. Donors can choose varying levels of anonymity when donating to recipient nonprofits. Only 4% of donors in the 2025 survey opted to be totally anonymous to the recipient organizations, most commonly to avoid public recognition or solicitation. Just 24% said they wanted to avoid scrutiny. Generally, the experts BI spoke with said they don't see confidentiality as the primary appeal of DAFs. Moffett and Correa said they haven't seen more major donors opt for anonymity or express concerns about confidentiality. Most of those BI spoke to were enthusiastic about DAFs, but some flagged risks. Mittendorf and Helen Flannery, an associate fellow at the Institute for Policy Studies, found through a study that DAFs distribute grants to politically engaged organizations 1.7 times more than other funders. "They can be great conduits for dark money because they're completely opaque," Flannery said, adding that the public doesn't always know where donors' DAF funds go. Risks aside, the wealthy seem as interested as ever in using DAFs — and in turn slowly eroding the private foundations that once defined the philanthropic world. Have a tip or something to share about your giving? Contact this reporter via email at atecotzky@ or Signal at alicetecotzky.05. Use a personal email address and a nonwork device; here's our guide to sharing information securely. Read the original article on Business Insider Sign in to access your portfolio
Yahoo
a day ago
- Business
- Yahoo
Roth IRA rules you should know during tax season — and all year long
Investing in a Roth IRA can be a smart way to save for retirement, but enjoying the tax benefits of a Roth generally takes some patience. That's because you fund these accounts with after-tax contributions, which means you won't be able to deduct your contribution on Form 1040 at tax time, as you can with a traditional IRA. Nevertheless, many taxpayers prefer the Roth IRA to the traditional IRA because of its long-term tax advantages. Put simply, if you think your tax rate will be higher in a few years than it is now — which tends to be true for people who are earlier on their career path — then a Roth can make a lot of sense. Even if you're not sure what your future tax rate will be, you still might like to have a Roth in your savings account lineup so that you can use it to better manage your annual tax bill in retirement. Still, a traditional IRA does offer that immediate tax break: If you qualify, you can reduce your taxable income by the amount of your contribution, and thus lower your tax bill. Money in a traditional IRA grows tax-deferred, with no tax owed until you withdraw the money. However, after you make your initial after-tax contribution, a Roth IRA is tax-free forever, so even when you take withdrawals in retirement, you won't owe any tax. But there are specific rules that govern who is eligible to open a Roth IRA and how much money you can contribute each year. There are three main rules related to Roth IRA contributions. The first rule of Roth IRA contributions relates to the type of income: You must have 'earned income' to be eligible to open a Roth or traditional IRA. You can't contribute to an IRA if your income is from unearned sources, such as investments. If you're paid wages, a salary, tips, professional fees or bonuses, then you're eligible to open an IRA so long as your contributions don't exceed your income. The second rule of Roth IRA contributions is that there's a limit to how much you can contribute. The maximum amount you can contribute to your Roth IRA depends on your age, with people who are 50 or older eligible for catch-up contributions: Roth IRA maximum contributions 2024 2025 Younger than 50 $7,000 $7,000 50 or older $8,000 $8,000 3. There's a third rule of Roth IRA contributions: Anyone who has earned income — even a child — can open an IRA, but you can't contribute more than you earned. So if your income is only $1,500 in a given year, then $1,500 is the most you can contribute. In other words, the maximum you can contribute is the lower of your earned income or $7,000 ($8,000 if 50+). There is an exception that allows people to contribute to an IRA even if they don't have earned income. If you don't have earned income but your spouse does, and you file a joint tax return, then each spouse can make a contribution to their own individual Roth IRA up to the current contribution limit, though the combined amount can't exceed the taxable compensation reported on your joint tax return. Another way that the traditional IRA and Roth IRA differ is that the Roth IRA imposes income limits on who is eligible to contribute. (In contrast, anyone can contribute to a traditional IRA; there are income limits on deducting that traditional IRA contribution but only if you or your spouse has a retirement plan at work.) If you earn too much money, you're ineligible for a Roth IRA. Also, you can no longer contribute to the Roth account you opened when you were earning less. If your income is between the phase-out amounts (see below), you can make a partial contribution, less than the full $7,000 (or $8,000 if you're 50 or older). The income limits are tied to your modified adjusted gross income (MAGI), which is your adjusted gross income with some items added back in, including any amount you claimed for the student loan interest deduction or a traditional IRA deduction (here's the IRS worksheet to calculate modified AGI for a Roth IRA). Filing status Roth IRA incomelimits 2024 Roth IRA incomelimits 2025 Single, head of household or married filing separately and didn't live with spouse at any time during the year Up to $146,000: full contribution Up to $150,000: full contribution $146,000 to $161,000: partial contribution $150,000 to $165,000: partial contribution $161,000 and over: no contribution $165,000 and over: no contribution Married filing jointly Up to $230,000: full contribution Up to $236,000: full contribution $230,000 to $240,000: partial contribution $236,000 to $246,000: partial contribution $240,000 and over: no contribution $246,000 and over: no contribution Married filing separately and lived with spouse at any time during the year $0 to $10,000: partial contribution $0 to $10,000: partial contribution $10,000 and over: no contribution $10,000 and over: no contribution Keep in mind that if you lived with your spouse at any time during the tax year and decided to file as married filing separately, then you can't contribute to a Roth if your modified AGI was more than $10,000. For people who fall into the 'partial contribution' income range, the IRS walks you through how to calculate the reduced amount of your Roth contribution, and Publication 590-A has a worksheet. If you earn more than the income limits for a Roth IRA, consider contributing to a traditional IRA, which doesn't have any income limitations for contributions. (Though if you or your spouse has a retirement plan at work, then income limits may affect your ability to deduct that IRA contribution from your taxes.) Another option to consider: a workplace retirement plan, which generally offers much more generous contribution limits than IRAs. The contribution limit for 401(k), 403(b) and most 457 plans is $23,500 in 2025, up from $23,000 in 2024. Keep in mind that if you're eligible to contribute to a Roth IRA, you can also: Contribute to a traditional IRA in the same year, as long as your total contribution to both your Roth and your traditional doesn't exceed $7,000 ($8,000 if 50 or older). Contribute to a workplace plan. For example, you can contribute $23,500 to your 401(k) in 2025 (add an extra $7,500 if you're 50 or older, or an extra $11,250 if you're 60 to 63), plus $7,000 to your Roth IRA (or $8,000 if you're 50 or older). Need an advisor? Need expert guidance when it comes to managing your money? Bankrate's AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals. There's another way to open a Roth IRA, even if you earn more than the income limits — though the process is complex. Regardless of your earnings, you can turn your traditional IRA into a Roth with a backdoor Roth IRA. Essentially, the idea with a backdoor Roth IRA is that you make a nondeductible contribution to a traditional IRA (in other words, this is after-tax money — you don't claim a tax deduction for that contribution ) and then convert that money to a Roth IRA. It's similar to a typical Roth IRA conversion, in which you take your untaxed money in a traditional IRA and convert it to a Roth IRA — at which point you'll owe income tax on the money you converted (the taxes will be due when you file your return for that year). A backdoor Roth is similar but a little different: You purposely make nondeductible (after-tax) contributions to a traditional IRA, because you know you're going to move that money to a Roth. However, keep in mind that such conversions are subject to the IRS' pro rata rule, which takes into account any pre-tax money you have in any of your traditional IRAs (excluding inherited IRAs). In other words, you can't choose to rollover only the after-tax IRA money. Say that you have $100,000 total in a few different traditional IRAs, and you've claimed tax deductions for $50,000 of that money. In other words, 50 percent of your traditional IRA assets have been taxed and 50 percent haven't. Then, say you decide to convert $20,000 of your nondeductible (after-tax) traditional IRA money to a Roth IRA. The IRS is going to say that 50 percent of that $20,000 is taxable. In other words, the IRS' pro rata rule prevents you from choosing to roll solely the after-tax $20,000 into a backdoor Roth. Instead, you need to calculate the tax based on how much of your total IRA holdings are pre-tax vs. after-tax. A backdoor Roth can be appealing if your income precludes you from contributing directly to a Roth IRA. But the process can be tricky, so you'll want to be sure you understand all the steps involved to avoid any unpleasant surprises at tax time. What's more, you can't 'undo' a Roth IRA conversion by recharacterizing it as a traditional IRA. That option changed under the Tax Cuts and Jobs Act of 2017, so now you have to live with your conversion decision. Learn more: Trump and the expiration of the TCJA: Here's what's next for your tax bill The reason why Roth IRAs are so attractive to many taxpayers is because withdrawals are tax-free forever. While contributions are made after-tax, your money grows tax-free, and generally you won't pay taxes on withdrawals after the age of 59½. Learn more: 8 best Roth IRA investments There are other tax rules for Roth IRAs that may also make this type of account appealing: Withdraw your contributions at any time, no matter your age, tax-free. Since you already paid taxes on your contributions, they are yours to withdraw whenever you want (though ideally you leave that money invested for retirement). But if you withdraw your investment earnings before 59½, you'll likely owe income taxes and a 10% penalty. No required minimum distributions. With a traditional IRA, you must take a required minimum distribution once you hit age 73, but that rule doesn't apply to Roth IRAs. If you have multiple sources of income in retirement, you can let money in a Roth IRA continue to grow. Transfer wealth tax-free. Money in a Roth IRA that is passed along to heirs is tax-free, so long as the account owner had the account for more than five years. This can save inheritors significant taxes, though most heirs must take required distributions and abide by restrictions on inherited IRAs. No age limits. You can contribute to a traditional IRA or a Roth IRA no matter how old you are, as long as you have earned income. There's also no minimum age to open a traditional or Roth IRA, as long as you have qualified earned income, though parents will need to set up a custodial account for children. Tax season perk. The IRS offers a nice incentive at tax time: You have until the April tax deadline to set up and fund an IRA for the prior tax year. That means you'll have until April 15, 2026 to open and contribute to a Roth for 2025. (At that point, you can open and fund your Roth IRA for 2025, and then also fund that Roth or another IRA for 2026.) This same benefit exists for traditional IRAs, too.
Forbes
3 days ago
- Business
- Forbes
IYKYK: Secrets To Getting The Most From Your Health Savings Account
The Health Savings Account (HSA) may be the most underrated financial savings vehicle out there. Why, you ask? HSAs offer a rare triple tax benefit. This makes HSAs more tax-efficient than even a 401(k) or Roth IRA, which either offers a tax break when you contribute or when you take money out, but not both. The tax advantages alone can make your money go significantly further, especially over time. There are no restrictions on when you can take money out of an HSA. Let's discuss how you can use these rules to your advantage. Step 1: Determine if you're eligible to use an HSA. Step 2: Maximize your contributions. Step 3: Manage your withdrawals. An HSA is more than just a medical account, it's a unique combination of tax savings, investment potential, and future healthcare funding. Whether you're looking to save money on this year's taxes or invest for long-term care costs, with smart contributions, disciplined investment, and proper recordkeeping, you can turn this underappreciated account into one of your most valuable financial tools. *You can use both an HSA and an FSA in the same year if your FSA is limited purpose and only reimburses you for dental and vision expenses.
Wall Street Journal
4 days ago
- Business
- Wall Street Journal
Big Tax Breaks for Health Savings Accounts Get Even Better in the GOP Bill
Health savings accounts are already a sweet deal for many Americans. They could soon get sweeter. The sprawling tax-and-spending bill passed by the House of Representatives on May 22 includes changes to HSAs, as they're called. If enacted by the Senate, which takes up the legislation in June, they would expand access to these tax-favored accounts.
Telegraph
5 days ago
- Business
- Telegraph
Farage isn't the first leader to promise tax breaks for couples. They all failed
In 2015, then-prime minister David Cameron introduced a marriage allowance letting one spouse transfer £1,260 of their personal allowance to the other, although this is not a significant tax break – saving only up to £252 in tax per year. To claim the benefit, the lower earner must have an income below the personal allowance and the higher earner must be a basic-rate taxpayer. Across the Atlantic, Donald Trump has promised a $1,000 'baby bonus' in the hope of boosting the birth rate. But such policies have had mixed success. Some experts question whether financial giveaways are the best way to support young families, although other countries such as South Korea and Hungary have successfully used tax reforms to increase the birth rate. Jason Hollands, of the stockbroker Bestinvest, said: 'Bolstering the tax benefits of being married might play a part in addressing this but needs to be considered against other options to help people have larger families, such as making childcare more affordable.'
