Charitable Giving 101: Make the Most of Your Donations

Welcome to Blue Chip Chats. My name is Gina DiGirolamo, and I’m a certified financial planner. This is the series where we talk through the technical and emotional sides of financial planning to help you make informed decisions about your future. If you like our content, be sure to like and subscribe so you don’t miss the next episode.

Thanks so much for watching! Let’s chat.

All right. Today I’m here with Emily Prater. Emily is a certified public accountant and a certified financial planner and financial advisor here at Blue Chip Partners. Emily, thank you for joining.

Thanks so much for having me, Gina. I’m excited to talk.

Absolutely. Today we’re going to be talking about strategies when it comes to charitable and philanthropic giving.

At a high level, Emily, what should someone be thinking about when it comes to charitable giving—whether that’s donating cash, writing a check, or using other planning strategies?

A lot of times when people think about charitable giving, the first thing that comes to mind is writing a check or making an online donation. I would advise anyone considering that to pause for a second, because there may be other strategies that are more tax-efficient. You can still accomplish gifting to the charity of your choice, but in a way that may help reduce your income taxes for the year.

Got it. One of the key terms we hear—especially with clients in retirement—is QCD. Can you give a broad overview of what that is?

Absolutely. A QCD is a qualified charitable distribution, which is a direct gift from a traditional IRA to a charity. Account owners become eligible at age 70½. One of the main benefits is that if you’re in RMD age, you can use a QCD to help satisfy your required minimum distribution.

If you start QCDs at age 70½, which is earlier than RMD age, you can also reduce your future RMD burden.

You mentioned the age requirement. Are there other restrictions or considerations with QCDs?

Yes. The distribution must come from an IRA. If you have a 401(k) or another employer plan, you would need to roll it over to an IRA before making a QCD. You can also make QCDs from inherited IRAs, but the 70½ age requirement still applies.

If you’re younger than that, QCDs aren’t an option.

Outside of QCDs, what other charitable giving strategies might make sense?

For clients who are younger than 70½ or who have lower balances in qualified accounts, donating highly appreciated stock can be a great strategy. Not everyone has enough cash on hand for a large charitable gift, and selling investments to generate cash can trigger capital gains taxes.

Instead, you can donate the stock, mutual fund, ETF, or bond directly to the charity. The charity can sell it without tax consequences, which helps you avoid realizing gains. It can also help reduce concentration risk in your portfolio.

Another strategy we often discuss is a donor-advised fund. Can you walk through how that works?

A donor-advised fund, or DAF, is an account held with a charitable organization. Once you contribute funds, they technically become the property of the charity. In the year of contribution, you can take a charitable deduction if you itemize.

However, you still retain control over how the funds are invested and when they’re distributed to charities. This allows people to contribute several years’ worth of donations in one year to maximize itemized deductions, then distribute those funds to charities over time.

We’ve seen this used more often since the standard deduction increased. Some people may need to make a larger charitable contribution in one year to itemize, but still want to spread the actual gifts out over multiple years.

Exactly. With the standard deduction for married couples around $30,000, it can be difficult to exceed that threshold—especially if your home is paid off and SALT deductions are capped. A donor-advised fund can help make itemizing more effective.

For someone considering a charitable donation this year, what’s the key takeaway?

Before you write a check, pause and consider your options. How old are you? Are you eligible for QCDs? Do you have qualified accounts you could donate from? Are there highly appreciated assets in your portfolio that might make more sense to donate than cash?

If you’re not already working with an advisor, consult one and create a strategy that aligns with your goals, rather than defaulting to the simplest option.

Absolutely. The key is having a plan and working with a trusted advisor to understand which strategies are available and how they may fit into your broader financial picture.

If you’d like to explore any of these options, reach out to our team at Blue Chip Partners. We’d be happy to help.

Thank you so much for joining, Emily.

Thank you, Gina.

And thanks for watching. Can’t wait to chat again soon.