Nearing Retirement? Here Are A Few Of the Best Gifting Strategies to Use

Nearing Retirement? Here Are A Few Of the Best Gifting Strategies to Use

As you start to get older in life, it’s natural to worry about the legacy that you are leaving behind. First, you’ll want to determine what you want your legacy to be, whether it is helping family members financially or giving graciously to your favorite charities. Then you’ll need to determine how you will transfer wealth to the recipients. It would be super easy if you could just send a one-time bank transfer to your children or grandchildren without any tax consequences.

However, you better believe that Uncle Sam has very strict tax rules when it comes to giving away financial gifts. You don’t want your hard-earned money to end up in the government’s pockets instead. Luckily, there are a few different strategies you can utilize to avoid or lessen the tax burden when sending financial gifts.

Let’s review a few of the best gifting strategies.

Gift Tax Exclusion 

As we said, the most straightforward way to distribute your estate before you pass is to send it as a direct gift. As of 2021, the IRS will allow you to give up to $15,000 (whether cash or fair market value of property) to one person in the form of a financial gift without needing to file a gift tax return or pay gift taxes. If you are married, then you can incorporate a strategy called gift splitting. Gift splitting allows you and your spouse to each send a gift and essentially double the exclusion amount for each recipient. This means that, instead of a $15,000 gift exclusion, you’ll be able to gift $30,000 without gift taxes. Keep in mind, if you elect to gift split, then you must file a gift tax return.

Qualified Charitable Distributions (QCDs)

If you are charitably inclined but don’t have enough deductions to itemize on your tax return, then you could consider a qualified charitable distribution. A qualified charitable distribution is a direct transfer of funds from your IRA to a qualified charity. Normally, income taxes are due any time you take money out of a traditional IRA, but distributions from your IRA directly to a charity avoid the income tax, ultimately lowering your tax bill. As a bonus, the QCD will count towards your yearly required minimum distribution (RMD).

Some rules to keep in mind:

  • You must be 70½ or older to utilize the QCD strategy.
  • QCDs are not limited to your RMD but are capped at $100,000 a year.
  • To qualify as a QCD, the receiving charity must be a 501(c)(3) organization.

529 Education Savings Plans 

If you’re not familiar, a 529 Education Savings Plan is an investment account that has tax benefits when saving for college. These plans can be used to pay for K-12 education, college, and student loan repayments. The IRS allows you to contribute up to $15,000 to a 529 plan tax-free (the same as the annual gift tax exclusion).

You’re also legally allowed to gift up to five years of contributions into a 529 plan at once. That means you can gift $75,000 to a 529 plan in one year without needing to worry about gift taxes. However, you must file a gift tax return to quintuple the contributions in one year. Also, keep in mind, you are using future gift tax exclusions for the recipient, meaning any additional gifts to that same person in the five-year period may be taxable.

Direct Payments for Education and Health Care

Lastly, if you pay for an individual’s education or medical expenses directly to the institution, the gift is nontaxable, and no gift tax return is necessary.

We hope that you’ve found this article valuable when it comes to learning a few of the best gifting strategies to use! If you are interested in one or more of the gifting strategies but do not know which one is right for you, please contact us at or call us at (301) 949-7300.


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