Last week I published a post on How to Vet a Charity Before You Donate. That post came about because of a phone call with a good friend who was thinking about giving more intentionally as she got older — and her questions sent me down a research rabbit hole I wasn’t expecting.
There was so much to cover that I broke it into two posts. This is part two: the tax side of giving well.
Mike and I give regularly to Breakthrough T1D, because my daughter has lived with Type 1 diabetes since she was 19. My hope — every single day — is that one day she gets to take off her pump and be insulin-free for the rest of her life. That hope is why we give.
What surprised me when I finally did the homework was this: I was leaving money on the table. Not a little. We were giving regularly and generously, and getting far less tax benefit than we should have been. Once I understood why, I knew we needed to change our process.
Here’s the thing most articles on charitable giving don’t tell you: if you take the standard deduction — and the majority of retirees do — writing a check to charity gives you zero additional tax benefit. None. Even if you give thousands of dollars a year.
There’s a better way. Actually, there are a few. Let me walk you through them.
Already know which charity you want to support? This post covers the tax and estate planning side. If you’re still figuring out how to vet a charity — watchdog tools, Form 990 reading, red flags — start with the companion post: How to Vet a Charity Before You Donate.
Why most retirees get no tax benefit from giving
Here’s the problem most people don’t realize they have.
Before the 2017 Tax Cuts and Jobs Act, roughly 30% of Americans itemized their deductions. Itemizing is the only way a regular cash donation to charity reduces your tax bill. The other 70% who took the standard deduction got no tax benefit at all from charitable giving — even if they wrote checks all year.
After 2017, the standard deduction nearly doubled. Plus, if you are over 65 you receive an additional deduction. That’s why today, somewhere around 90% of Americans — and an even higher share of retirees — take the standard deduction. Meaning: if you’re writing a check to charity and not itemizing, you’re getting exactly zero additional tax benefit.
The good news: there are two strategies specifically designed to solve this problem. One is the Qualified Charitable Distribution. The other is the Donor-Advised Fund with bunching. Let’s take them in order.
The Qualified Charitable Distribution (QCD): The strategy most retirees have never heard of
If you are 70½ or older and have a traditional IRA, this is among the most powerful giving tools available to you. And most people have never heard of it.
A Qualified Charitable Distribution — QCD for short — is a direct transfer of money from your IRA to a qualified charity. The funds go straight from your IRA custodian to the organization. They never touch your hands. And here’s why that matters:
| Regular cash donation | QCD from your IRA | |
| Tax benefit | Only if you itemize | No itemizing needed — ever |
| Income treatment | Counts as taxable income first | Never enters your taxable income |
| Satisfies RMD? | No | Yes — dollar for dollar |
| Medicare impact | None | Lowers AGI, may reduce IRMAA surcharges |
| 2026 deduction limits | Subject to new OBBBA restrictions | Completely unaffected |
That middle row is worth pausing on. A regular donation to charity is made with money that has already been included in your taxable income. A QCD is excluded from your income entirely. It’s not a deduction — it’s better than a deduction. The money never shows up on your tax return as income at all.
The 2026 numbers
For 2026, you can transfer up to $111,000 per person — or $222,000 for a married couple — directly from your IRA to charity as a QCD. That limit is now indexed to inflation, so it will continue to grow.
A note on the One Big Beautiful Bill Act (2026)
You may have heard that 2026 brought new restrictions on charitable deductions. That’s true for regular donations: itemizers now face a new 0.5% of AGI floor before deductions kick in, and high earners face a cap on how much they can deduct (35% of AGI). Non-itemizers got a modest new $1,000 deduction ($2,000 for married couples), but that’s a small consolation.
QCDs are entirely unaffected by these changes. They bypass the itemizing system altogether. This actually makes QCDs even more valuable in 2026 than they were before — because regular donations just got harder to deduct.
The rules you need to know
- You must be 70½ or older at the time of the distribution
- The money must go directly from your IRA custodian to the charity — if it passes through your hands first, it no longer qualifies
- QCDs work with traditional IRAs, inherited IRAs, SIMPLE IRAs, and SEP IRAs. Not 401(k)s — though you can roll a 401(k) into a traditional IRA first
- The charity must be a qualified 501(c)(3). QCDs cannot go to donor-advised funds or private foundations — this is the most common misconception
- Do your QCD early in the year, before taking other IRA distributions. The first dollars out of your IRA in a calendar year count toward your RMD — you can’t retroactively convert earlier distributions to QCDs
- The charity must send you a written acknowledgment for distributions of $250 or more, and you cannot receive any goods or services in return
| Real-world example Say your RMD for 2026 is $18,000. You direct your IRA custodian to send $10,000 directly to Breakthrough T1D as a QCD. That $10,000 is excluded from your taxable income entirely. You only need to take $8,000 as a regular (taxable) distribution to satisfy the rest of your RMD. The charity gets the full $10,000. You pay tax on $8,000 instead of $18,000. |
The Donor-Advised Fund (DAF): Give now, decide later
A Donor-Advised Fund is a giving account held through a financial institution. You contribute a lump sum — cash, appreciated stock, or other assets — take the full tax deduction in that year, and then distribute to charities at your own pace over time.
The three largest are Fidelity Charitable, Schwab Charitable, and Vanguard Charitable. All are free to open with minimums typically starting around $5,000.
The bunching strategy
Here’s where a DAF earns its keep for most retirees:
Instead of giving $5,000 to charity every year for three years — and getting no deduction because you take the standard deduction — you put $15,000 into your DAF in a single year. That larger contribution may be enough to push you over the standard deduction threshold, so you itemize that year and capture the full tax benefit. Then you distribute $5,000 to your charities each year over the next three years, just as you normally would.
The charity’s experience is unchanged. Your tax outcome is meaningfully better. This could be a real advantage in a year where you sell a business or in the two years before you start taking Medicare (see Post on.
| One critical rule: You cannot fund a DAF with a QCD. A QCD must go directly from your IRA to a public charity. A DAF is an intermediate account — not a charity itself — so it doesn’t qualify. Think of them as two separate lanes: QCDs go from IRA → charity. DAFs go from your taxable assets → giving account → charity. They don’t mix. |
DAFs have an additional advantage worth mentioning: If you own appreciated stock that has grown significantly, contributing those shares directly to a DAF lets you avoid capital gains tax on the appreciation entirely — while still taking a deduction for the full fair market value. It’s often more tax-efficient than selling first and donating cash.
Should you add a charity to your will? (Yes — and here’s the smart way to do it)
This was my friend’s original question, and it’s the one I think most people underplan for.
I’ll give you our personal answer first. Mike and I recently updated our Trust. We’ve included a provision that if our entire family — all of us, every generation — were to die in some unimaginable catastrophe, a significant portion of our estate goes to Breakthrough T1D. It’s not morbid planning. It’s intentional planning. And it reflects what we actually care about.
Here are the three main ways to leave money to charity through your estate, and why the choice matters more than most people realize.
Option 1: A bequest in your will
You direct that a specific dollar amount, a percentage of your estate, or the remainder after other bequests goes to a named charity. It’s straightforward to set up with your estate attorney and removes the donated amount from your taxable estate. For most people, this is the starting point.
Option 2: IRA or retirement account beneficiary designation
This one is underused, and in my opinion it’s often the most tax-efficient option available. Here’s why it matters so much:
When your heirs inherit an IRA, they pay ordinary income tax on every dollar they withdraw. A charity pays no income tax at all. So the same dollar is worth significantly more to a charity than it is to an individual heir who inherits it.
The strategic move: name a charity as the beneficiary of your IRA, and leave other assets — your home, brokerage accounts, savings — to your family. Your heirs receive those assets with a stepped-up cost basis (meaning they inherit them at current market value with no capital gains on prior appreciation). The charity receives the IRA dollar-for-dollar, tax-free. Everyone wins more than if you’d done it the other way around.
Option 3: Charitable remainder trust
This is more complex, but worth knowing exists for larger estates. You transfer assets into the trust, receive income payments for life (or a defined period), and the charity receives the remainder when the trust ends. You receive an immediate partial tax deduction, avoid capital gains on the transfer, and create a reliable income stream for yourself in retirement.
This is firmly a “talk to your estate attorney” conversation. But if you have a significant IRA or appreciated assets, it’s worth having.
| Don’t forget this detail: Beneficiary designations on IRAs and retirement accounts override your will. If you named a beneficiary ten years ago and have since changed your mind, your account records — not your will — control what happens. This is a detail that falls through the cracks more often than you’d think. Review your beneficiary designations every few years. |
The bottom line
As Arthur Brooks writes, later life is about climbing a second mountain — and leaving something meaningful behind is part of that. Giving well isn’t just about generosity. It’s about intention.
The tax strategies here aren’t loopholes or tricks. They’re tools Congress specifically created to encourage giving. A QCD means more of your money reaches the cause you care about instead of going to taxes. A DAF lets you give strategically across years. A smart beneficiary designation means your heirs and your cause both end up better off.
My daughter’s health is why I give to Breakthrough T1D. Your reason will be your own. But the mechanics are the same for all of us — and now you know how to use them.
As always, I’m not a financial advisor and this isn’t tax advice. Please consult a CFP or CPA before implementing any of these strategies — especially QCDs, DAFs, and charitable bequests.
Frequently asked questions
Can a QCD lower my Medicare premiums?
Yes. A QCD reduces your adjusted gross income (AGI) — and on Part B and Part D premiums are tied to your AGI from two years prior. A meaningful QCD this year could keep you below an IRMAA threshold, lowering your premiums two years from now. It’s one of the less obvious benefits of the strategy.
Can I use a QCD to fund a donor-advised fund?
No. Donor-advised funds, private foundations, and supporting organizations are explicitly excluded. A QCD must go directly from your IRA to a public 501(c)(3) charity. If you want to use a DAF, fund it separately with non-IRA assets.
Should I leave my IRA or my other assets to charity in my will?
From a tax-efficiency standpoint, leaving your IRA to charity and your other assets — home, brokerage accounts, savings — to your heirs is usually the smarter move. Your heirs pay ordinary income tax on every dollar they withdraw from an inherited IRA. A charity pays no income tax at all. Meanwhile, non-retirement assets pass to heirs with a stepped-up cost basis, eliminating capital gains on prior appreciation. Both parties end up better off.
What is the difference between a QCD and a donor-advised fund?
A QCD goes directly from your IRA to a qualified charity, is excluded from your income, and works best for retirees 70½ or older with RMD obligations. A DAF is a giving account you fund with taxable assets, take a deduction in the year of contribution, and distribute to charities over time. The bunching strategy — contributing multiple years’ worth of giving in one lump sum — makes DAFs useful for people who want to itemize at least one year. They serve different purposes and cannot be combined.
What is a charitable remainder trust and who is it for?
A charitable remainder trust lets you transfer assets into a trust, receive income payments for life or a fixed period, and leave the remainder to a charity when the trust ends. You receive a partial upfront tax deduction and avoid capital gains on the transfer. It’s best suited for people with significant appreciated assets or large IRAs who also want a reliable income stream in retirement. This is a conversation for your estate attorney — but worth knowing exists.
