Support the charities you love and receive tax benefits

You can support the causes you care about while reducing taxes by giving more strategically than writing a check. A donor-advised fund lets you contribute, claim a deduction now, and direct gifts to charities over time. A qualified charitable distribution lets those 70 and a half or older give directly from an IRA, which can satisfy required minimum distributions without adding to taxable income.

Generosity and good tax planning can work together

You give because you care, not because of the tax code. Still, when giving is part of your retirement plan, there is no reason to leave tax savings on the table. The way you give can matter as much as the amount, and a more thoughtful approach often means more reaches the causes you love and less goes to taxes.

Two tools come up again and again for retirees who want to give well: the donor-advised fund and the qualified charitable distribution. Each solves a different problem, and together they cover most situations.

The donor-advised fund

A donor-advised fund works like a charitable account. You contribute money or appreciated investments, claim a tax deduction in the year you contribute, and then recommend grants to your favorite charities over time. That timing flexibility is powerful. You can make a larger contribution in a high-income year, capture the deduction when it helps most, and still spread your actual giving out for years.

Funding it with appreciated investments rather than cash adds another advantage, because you may avoid the capital gains tax you would owe if you sold those investments first.

The qualified charitable distribution

A qualified charitable distribution, or QCD, is available once you reach age 70 and a half. It lets you send money directly from your IRA to a qualified charity. The gift is not counted as taxable income to you, and once you are subject to required minimum distributions, a QCD can satisfy some or all of that requirement.

Keeping that income off your tax return can have ripple effects worth noting:

• It can help keep you in a lower tax bracket
• It may reduce how much of your Social Security is taxed
• It can help you avoid income-based increases to Medicare premiums
• It satisfies required minimum distributions while supporting a cause you value

Which tool fits depends on your age, your accounts, and your giving goals, so it is worth talking through the specifics with a fiduciary advisor before you act.

Frequently asked questions

What is a donor-advised fund and how does it save on taxes?

A donor-advised fund is a charitable account you contribute to, claiming a tax deduction in the year you fund it, then recommend grants to charities over time. Funding it with appreciated investments instead of cash can also help you avoid capital gains tax.

What is a qualified charitable distribution?

A qualified charitable distribution, or QCD, lets people age 70 and a half or older give directly from an IRA to a qualified charity. The gift is not counted as taxable income, and it can satisfy some or all of your required minimum distribution.

Can charitable giving lower my Medicare premiums or Social Security taxes?

It can, indirectly. Because a qualified charitable distribution keeps that income off your tax return, it may help reduce the taxation of your Social Security and help you avoid income-based increases to Medicare premiums. Your specific situation should be reviewed with an advisor.