March 29, 2023

A Retiree’s Guide to Charitable Giving

For those who are charitably inclined, there are many ways to give to your favorite causes and organizations. In this blog post, we will describe two popular options- Donor Advised Funds and Qualified Charitable Distributions.


Donor Advised Funds:

A donor advised fund (commonly referred to as a DAF), is an account that you can establish to gift funds to qualified charitable organizations under section 501(c)(3) of the internal Revenue Code. This is a gifting vehicle that you can use to donate funds in a tax-efficient manner. It is important to note that generally, you can only deduct charitable contributions if you itemize deductions on Schedule A (Form 1040), Itemized Deductions.

When it comes to funding a DAF, you have many options, but most commonly these are funded through cash, investments, or a mix of both. A DAF is essentially a holding place for future charitable gifts. You receive a tax deduction in the year of the contribution to a DAF, then you can direct the assets at a later time to any qualified charity. Distributions from the DAF can be made anonymously or in your name (whichever you prefer), you can donate an amount, and the charity receives the gift 100% tax-free.

As with all tax planning, it is recommended to consult with a tax professional before finalizing your gifting strategy. In general, gifts to public charities (including donor advised funds), are limited to 30% of AGI for non-cash donations (that are held for more than one year), and 60% of AGI for cash donations. For example, if your AGI is $200k, your deduction will be limited to $60k if gifting non-cash assets, or $120k if gifting cash. If you exceed the limit in a given year, the current tax code permits you to carry forward the deduction over 5 subsequent tax years.

One strategy that may be advantageous is gifting appreciated securities, mutual funds, or ETFs to a donor advised fund. Appreciated investments are generally subject to capital gains tax, so depending on your income level, you can potentially avoid 15% – 23.8% tax if you gift an investment that is operating at a gain. For example, if you donate a stock that has a $100k gain, this allows you to “double dip” meaning you receive a deduction against federal income tax (limited to 30% of AGI for non-cash donation), plus you avoid capital gains tax on the $100k growth.


If you want to learn more about donor advised funds, here are a few additional resources:

  1. Video:
  2. Blog:


Qualified Charitable Distributions:

A Qualified Charitable Distribution (QCD) allows individuals who are 70 ½ years old (or older) to donate their required minimum distribution (RMD) to charity. For 2023, individuals can donate up to $100,000 total to one or more charities directly from a taxable IRA instead of taking their RMD. For those who are charitably inclined, this can be an effective way to avoid income tax that would otherwise be due if the RMD is taken outright.

For 2023, RMDs begin at age 73. Once someone attains age 73, RMDs must be taken on an annual basis regardless of whether or not additional income is needed on top of income sources like Social Security, pensions, and annuities. The annual RMD is calculated by dividing the prior December 31st balance of an IRA by a life expectancy factor that is published by the IRS. Since RMDs apply to taxable IRAs (meaning “pretax” IRAs), this can cause an unnecessary tax liability that can result in a higher marginal tax bracket, surcharged Medicare premiums, and phaseouts for certain tax deductions and credits.

QCDs allow individuals to fulfill their RMD by making a direct transfer to a qualified charity. The QCD is not counted as income for the donor, and therefore avoids income tax (and other concerns related to showing additional income on your tax return as long as the aggregate total of QCDs is under $100,000 in a given year). It is important to note that the $100,000 limit is per individual, not per charity. For example, someone can donate $10,000 to 10 different charities ($100,000 total), all 100% tax-free.

For a QCD to count towards a minimum RMD, it must be made by December 31st and the funds must be given directly to the charity. For example, the distribution needs to be made in the form of a check payable to the charity or a direct wire from the IRA to the charity. In addition to the donor avoiding income tax on the distribution, the funds are also received 100% tax-free by the recipient (as long as the funds are paid directly from the IRA to an eligible charitable organization).


If you are charitably inclined and want to discuss your goals with a financial advisor, here is a link you can use to schedule a consultation-


Equilibrium Wealth Advisors is a registered investment advisor. The contents of this article are for educational purposes only and do not represent investment advice.

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