For many thriving retirees, providing financial support for the charities they care about is a core value. Fortunately, the tax code provides incentives for those who wish to continue a philanthropic legacy. But to make the most of those incentives, retirees need a strategy that coordinates their charitable aims with solid tax planning.
The OBBBA and Charitable Deductions
Let’s start with some low-hanging fruit: the new above-the-line charitable deduction created by the 2025 One Big Beautiful Bill tax legislation. This new law provides for a deduction that any taxpayer can take by donating up to $1,000 ($2,000 if married and filing jointly) to a qualified charity. This deduction is available even if you don’t itemize, and it provides a way for anyone to receive a tax benefit for making a qualifying donation.
The AGI Donation “Floor”
On the other hand, the OBBBA also imposes a limitation on high-income retirees who make charitable donations: they may only be credited for donations in excess of 0.5% of their adjusted gross income (AGI). In other words, if your AGI is $200,000, you can only receive credit for donations exceeding $1,000 (i.e., if you donate $10,000, you’ll only get to deduct $9,000 from taxable income). Those in the highest tax brackets (with correspondingly higher AGI) are the most affected by this new provision.
Qualified Charitable Distributions (QCDs) and Taxable Income
Affluent retirees may often find themselves in the position of not needing to draw income from their tax-deferred (traditional, funded with pre-tax money) retirement accounts like IRAs, 401(k)s, or 403(b)s. But the problem for those age 73 and above is that if they don’t take out at least the amount of their required minimum distribution (RMD), they’ll be penalized. The better news is that there is a way to reduce taxable retirement income that would otherwise be attributed to the RMD: a qualified charitable distribution (QCD). Retirees who don’t require some or all of their RMD to maintain their standard of living can instead distribute the funds to a qualified charity and get a dollar-for-dollar reduction in taxable income. The QCD also counts toward the retiree’s RMD for the year without increasing modified AGI (which may help avoid higher Medicaid premiums). Notably, QCDs are also not subject to the 0.5% AGI floor. Note also that QCDs may only be made from IRAs, not from 401(k)s or 403(b)s.
Donating Appreciated Assets
Of course, charitable gifts need not be only in the form of cash. If you hold stocks or mutual funds that have significantly increased in value, you can transfer them directly to a public charity and receive a deduction from taxable income equivalent to the fair market value (FMV) at the time of the donation (subject to the AGI floor mentioned above). Many retired donors prefer donating appreciated assets to charity in order to avoid paying the capital gains tax that would otherwise be due upon the sale.
Donor-Advised Funds
And speaking of donating appreciated assets, it’s a good time to mention donor-advised funds (DAFs) as a useful and simple tool for conducting philanthropy. A DAF may be able to accept many different types of assets, including listed securities, real estate, collectibles, and even private business interests. The DAF can then dispose of the assets and distribute the proceeds to qualified charities of the donor’s choosing. Donors may even group several years’ worth of gifts together in a single year, creating a larger deduction from taxable income (again, subject to the 0.5% AGI floor) and providing a philanthropic benefit that can extend into the future.
Trusts, Estate Planning, and Charitable Giving in Retirement
As a part of estate planning, some affluent retirees may utilize some form of charitable remainder trust (CRT) or charitable lead trust (CLT) as a way of maintaining income, reducing heirs’ exposure to estate or inheritance taxes, and also benefiting favored charities.
Charitable remainder trusts, often funded with appreciated assets like real estate or listed securities, typically liquidate the assets (avoiding capital gains liability) and pays an income to either the grantor who establishes the trust or the grantor’s chosen beneficiary(ies) during their lifetime. Remaining funds are distributed to the charity at the end of the specified term for the income (often at the passing of the grantor or a surviving spouse).
Charitable lead trusts, by contrast, upon receiving the assets, begins distributing income to the designated charity for a set term. At the conclusion of the term, the remaining assets in the trust are distributed to the beneficiaries designated by the grantor (often, children or grandchildren).
As a fiduciary financial advisor and wealth manager, The Planning Center recognizes that each client’s retirement situation is different, as are their philanthropic interests and goals. By working to develop a charitable gifting plan that aligns with the client’s tax management strategies, we can help provide benefits to both our clients and the worthwhile causes they support.
What are some other tips for more effective charitable giving?
