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7 ways to avoid getting scammed by a ‘charity’ this holiday season

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A few years ago, a heart-wrenching story from New Jersey captured the nation’s attention. A couple, Katelyn McClure and her boyfriend launched a fundraiser to help a homeless man claiming he had used his last $20 to assist McClure when she ran out of gas. The tale struck a chord with thousands, leading to an overwhelming response on GoFundMe where donors contributed a staggering $400,000. However, this touching story soon unraveled, exposing a shocking scam. The money disappeared, and it was revealed that the couple had fabricated the entire narrative. Their deception ultimately landed them both in prison, serving time for their fraudulent actions. 

This cautionary tale highlights the need for doing copious research when donating to charitable causes, particularly during the holiday season when people are most inclined to give. While countless organizations and individuals genuinely need help, there are also those who exploit goodwill for personal gain. To ensure your donations make a real difference, here are some essential tips to avoid scams and protect your generosity. 

1. Verify charitable status with the IRS 

Before donating to any organization, start by confirming its legitimacy through the IRS’s Tax-Exempt Organization Search tool. This resource allows you to check whether the charity is recognized as a tax-exempt entity under Section 501(c) of the Internal Revenue Code.  

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Additionally, confirm that the organization is eligible to receive tax-deductible contributions. These two questions — whether the organization is tax-exempt and whether your donation is deductible — are critical in ensuring your funds go to a legitimate cause. If the answers to these questions are unclear, it’s better to hold off on donating. 

IRS headquarters

Check with the IRS if you want to determine if the donation you are making is tax-deductible. | The U.S. Flag flies above the International Revenue Service headquarters building on January 3, 2024, in Washington, D.C. (Photo by J. David Ake/Getty Images)

2. Research the charity’s financial practices 

Charities often advertise claims such as “a portion of every dollar goes to…” which might suggest that your contribution directly supports their mission. However, a deeper look at the charity’s finances can tell a different story. To investigate further, review the organization’s Form 990, a document that provides detailed financial information. This form outlines how the charity allocates funds, including the proportion spent on programs versus administrative costs, and reveals executive compensation. Understanding these details ensures that your donation aligns with your values and expectations. 

3. Differentiate between gifts and donations 

Crowdfunding platforms like GoFundMe have revolutionized charitable giving, allowing individuals to support personal causes or emergency relief efforts. However, it’s essential to recognize that contributions made to these campaigns often do not qualify as charitable donations.  

If the campaign organizer is not affiliated with a registered tax-exempt organization, your contribution is considered a gift and is not tax-deductible. To avoid confusion, always ask how the fundraiser is connected to the cause and how the funds will be used. This distinction between gifts and charitable donations can help manage expectations and prevent disappointment. 

4. Use charity ranking resources 

Several online platforms provide valuable insights into the legitimacy and effectiveness of charitable organizations. Charity Navigator is a popular website that evaluates charities based on financial health, accountability and transparency. It also offers resources such as trending charity lists, top ten rankings and donor tips.  

Similarly, GuideStar provides comprehensive information on nonprofits, including access to Form 990s and data on community foundations. By leveraging these tools, you can make informed decisions and ensure your contributions support reputable organizations.

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5. Explore donor-advised funds 

For a more strategic approach to charitable giving, consider using a donor-advised fund (DAF). This method allows you to contribute to a mutual fund company, securing a tax deduction for the calendar year. Your donation is invested and grows tax-free, giving you the flexibility to distribute grants to charities over time. DAFs are an excellent option for donors who want to maximize their tax benefits while maintaining control over how and when their funds are distributed. 

6. Always request a receipt 

Whether donating cash or non-cash items, always obtain a detailed receipt for your records. This step is especially crucial if you plan to itemize deductions on your tax return. For non-cash donations, you may need to complete Form 8283 to claim your deduction. Websites like satruck.org provide valuation guides for common items, helping you document their fair market value accurately. Keeping thorough records ensures compliance with tax laws and protects you in case of an audit. 

Several online platforms provide valuable insights into the legitimacy and effectiveness of charitable organizations. Charity Navigator is a popular website that evaluates charities based on financial health, accountability and transparency. It also offers resources such as trending charity lists, top ten rankings and donor tips.  

7. Protect yourself during the holiday season 

Scammers often exploit the holiday season to take advantage of unsuspecting donors. For instance, the U.S. Postal Service never sends unsolicited text messages or emails containing tracking links unless you’ve specifically signed up for them.  

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Likewise, FedEx and UPS have resources on their websites to help distinguish legitimate communications from fraudulent ones. If you receive a suspicious message or fall victim to a scam, report it immediately to the FBI’s Internet Crime Complaint Center at www.ic3.gov

Charitable giving has the potential to transform lives and create lasting positive change. By taking the time to verify the legitimacy of the organizations you support, you can ensure that your generosity reaches those who genuinely need it. As you spread kindness this holiday season, remain vigilant against scams to protect yourself and your contributions. 

Ted Jenkin is CEO and co-founder of Oxygen Financial and president of Exit Stage Left Advisors.

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This ETF provider launches a new way to play Tesla

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The $18B single-stock ETF explosion

An exchange-traded fund provider is helping investors make more bets on Wall Street’s most profitable momentum trades.

GraniteShares, which debuted its first installment of single-stock ETFs in 2022, now manages 20 of them. It includes the GraniteShares YieldBoost TSLA ETF (TSYY), which launched last month. The fund gives investors exposure to Tesla.

“This is about more and more people taking charge of their own finances,” GraniteShares CEO William Rhind told CNBC’s “ETF Edge” this week. “They want to be able to actively manage that and maybe try and outperform… That’s where we see things like leverage, single stocks really playing.”

He calls demand “a worldwide phenomenon” because it’s not just an opportunity for U.S. investors.

“We have investors all around the world that are looking to the U.S. ETF market first because that’s the biggest source of liquidity,” added Rhind. “They’re looking to the names that they know and love – the Teslas of the world [and] the Nvidias of the world. They’re only available here in the U.S., and that’s why people come here to trade them.”

But the firm acknowledges the strategy isn’t suited for everyone.

GraniteShares includes a disclosure in bold on its website: “An investment in these ETFs involve significant risks.”

As of Friday’s close, Tesla stock is nearly $100, or about 19%, off its all-time high – hit on Dec. 18.

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ALL, WBA, DAL, WBD and more

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If you are 60 years old, new 401(k) rules could save you money

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They say you get better as you get older. This might just be true for 401(k) plans in 2025 for those striding into their golden years. Planning for retirement just got a significant boost for Americans aged 60 to 63, thanks to provisions in the SECURE Act 2.0.  

Beginning in 2025, individuals in this age group will be eligible for something called a “super catch-up” contribution limit for employer-sponsored retirement plans, including 401(k)s. This exciting change, recently clarified by the IRS, provides a unique opportunity to accelerate your retirement savings during those crucial pre-retirement years. 

The basics: Catch-up contributions 

Catch-up contributions allow individuals aged 50 and older to save extra money for retirement beyond the standard contribution limits. For 2024, the catch-up contribution limit was $7,500, on top of the $22,500 annual contribution cap for 401(k)s and similar plans. These additional contributions are designed to help older workers close any retirement savings gaps they may have accumulated over the years. 

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Introducing the super catch-up 

Under the SECURE Act 2.0, individuals aged 60, 61, 62, and 63 can contribute even more to their retirement accounts starting in 2025. The new “super catch-up” limit will be the greater of $10,000 or 150% of the regular catch-up contribution limit for the given year, adjusted annually for inflation. At 64, you go to the regular catch-up. 

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401(k)s just got a little better for those who are aged 60-63, thanks to new catch-up provisions. (Reuters)

For example, if the regular catch-up contribution in 2025 remains at $7,500, the super catch-up limit would increase to $11,250 (150% of $7,500). If the $10,000 floor is adjusted for inflation, it could rise even higher, allowing individuals to add substantially more to their retirement savings. 

Why is this important? 

This enhancement comes at a pivotal time for many individuals. Those in their early 60s often find themselves at the peak of their earning potential, with more disposable income available for saving. At the same time, they are rapidly approaching retirement and may feel pressure to bolster their nest eggs. The super catch-up offers a golden opportunity to bridge any shortfalls and strengthen their financial security. 

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Additionally, this provision aligns with the reality that many Americans are living longer. Increasing retirement savings can help ensure a more comfortable and secure retirement in the face of rising healthcare costs, inflation, and other financial challenges. 

Key considerations 

To take full advantage of the super catch-up, it’s essential to plan strategically: 

  1. Evaluate Your Budget: Ensure you have the financial flexibility to maximize contributions. Cutting unnecessary expenses or reallocating resources may be necessary.
  2. Consult a Financial Advisor: Professional guidance can help optimize your savings strategy, factoring in tax implications and long-term goals. One good place to start is at Exit Wealth to learn more about this technique.
  3. Understand Tax Implications: Contributions to traditional 401(k)s are tax-deferred, reducing your taxable income now but subject to taxes during retirement withdrawals. Consider how this fits into your overall tax strategy and whether the regular 401(k) or the Roth 401(k) make more sense for your situation.
  4. Stay Informed: Keep an eye on annual IRS updates regarding contribution limits and inflation adjustments.

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The super catch-up offers a golden opportunity to bridge any shortfalls and strengthen their financial security. 

A new era of retirement savings 

The super catch-up contribution is a testament to the growing focus on enhancing retirement readiness for Americans. By leveraging this opportunity, individuals aged 60 to 63 can significantly boost their retirement savings, potentially lower their overall tax liability, and provide greater peace of mind as they transition into their golden years. 

If you’re approaching this age bracket, now is the time to review your retirement strategy and prepare to make the most of this exciting new provision. Retirement is a journey, and with the super catch-up, you can ensure yours is as secure and fulfilling as possible. 

Ted Jenkin is president of Exit Stage Left Advisors and partner at Exit Wealth.

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