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For many people, charitable giving feels like something to focus on later in life, after retirement, when there’s more time to reflect and plan.
But from a financial standpoint, the most powerful time to give is often while you’re still earning.
That may sound counterintuitive. After all, retirement is when you finally have clarity about what you can afford to give away.
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But the truth is, charitable gifts made during your peak earning years can have a bigger financial impact — both for you and for the organizations you support.
1. Tax advantages today, generosity in the future
Here’s an example to better illustrate: Deductions are most valuable when your income, and therefore your tax bracket, is at its highest. A $10,000 donation can feel very different depending on when it’s made.
If you’re in the 35% tax bracket, that gift could save you $3,500 in taxes. Make the same contribution after you’ve retired and dropped into a 22% bracket, and the tax savings fall to $2,200.
The charitable impact is the same, but the benefit to you is nearly 60% greater during your earning years.
That doesn’t mean you have to give away a large sum all at once. One of the best tools for bridging today’s tax advantages with tomorrow’s generosity is a donor-advised fund (DAF).
These funds allow you to make a sizable, tax-deductible contribution in a high-income year, but decide later how and when to distribute the money to the charities you care about.
It’s like setting aside cash in your “charitable account.” You lock in the deduction now, but retain the flexibility to give gradually, even long after you’ve retired.
This approach can be especially useful if you’re expecting a one-time jump in income, such as selling a business, receiving a bonus or exercising stock options.
You can offset some of that taxable income by funding a donor-advised account in the same year.
2. High interest rates can work in your favor
Today’s higher interest rate environment has also made certain charitable strategies more appealing than they’ve been in years. Vehicles like charitable remainder trusts or charitable gift annuities can provide reliable income streams for you or your loved ones while ultimately benefiting the causes you support.
With rates up, those income streams are often higher, a welcome development for anyone seeking both generosity and financial security.
3. You’ll make an impact now
The bigger picture here is that giving shouldn’t be an afterthought or something reserved for the end of your career.
It can be a living, active part of your financial plan, and a way to align your wealth with your values while you’re still building both.
The key is understanding what you need to support your lifestyle and what constitutes excess net worth that could be put to work for others.
When giving is integrated into your broader plan, it not only helps you make the most of your resources but also adds purpose to your financial life.
You don’t have to wait for retirement to make an impact. You can start now. Often, that’s when your generosity goes the farthest.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
