What would be the best method of a charitable donation:?

Question

Donate $5000 worth of stock, held for over a year, to a charity from a brokerage account

or

Donate $5000 worth of stock held in my IRA or $401k plan.

Assuming I paid $1000 for the stock in both accounts.

What are the tax advantages or disadvantages?

Donate $5000 worth of stock, held for over a year, to a charity from a brokerage account

or

Donate $5000 worth of stock held in my IRA or $401k plan.

Assuming I paid $1000 for the stock in both accounts.

What are the tax advantages or disadvantages?

Would i get a $5000 deduction on my personal income tax from the brokeage account donation?
Would i get a $5000 deducion on my personal income tax from the IRA donation?

Answer 1

Donate the stock from your brokerage account and you won't have to pay gains at all.

If you gave more info I'd give you a specific answer, so I'm going to generalize:

Retirement accounts have advantages upon your death that would benefit your heirs, and IF you have a 401k but don't work there anymore you should move those funds to an IRA asap.

Answer 2

Don't donate stock unless it is worth more than you paid for it so you can get the benefit of the higher value and not pay tax on the gain. If you want to donate stock that has lost value, sell the stock and take the tax loss then donate the money.

If you donate stock from an IRA you can't write off the charitable deduction, but you don't have to pay income tax on the withdrawal either. This is a good move if you don't have enough itemized deductions before the contribution and have to take a required minimum distribution from the IRA.

Answer 3

If the stock in your brokerage acct has a gain and you donate that stock, you won't pay the capital gains tax on the $4000 gain, and the charity won't either.

If you donate money directly from your tax-deferred retirement fund, assuming you meet the rules, you won't pay the tax on the withdrawal which would be at ordinary income rates on the $5000 withdrawal.

So on the surface, assuming that you meet the special rules for being allowed to donate directly from the retirement account, you'd save taxes by doing that. The charity comes out the same either way.