Insight into Personalized Estate Planning

By: Marie Feindt

How a Retiree Cut Their Tax Bill and Made a Bigger Charitable Impact

Last week, I sat down with a long-time client who was facing an all-too-common dilemma: "I have to take Required Minimum Distributions (RMDs) this year, but I don’t need the money. And worse, it’s going to push me into a higher tax bracket."

For many high-net-worth retirees, this is a frustrating reality. After years of disciplined savings, the IRS finally forces you to start drawing down your tax-deferred retirement accounts—whether you need the income or not. But here’s the good news: You can turn this tax burden into an opportunity for both your financial future and your favorite charities.

That’s exactly what my client did—by strategically using Qualified Charitable Distributions (QCDs) and a Donor-Advised Fund (DAF). Here’s how we structured it.

The Power of QCDs: Giving While Reducing Your Taxable Income

A Qualified Charitable Distribution (QCD) is one of the simplest, most effective ways to satisfy your RMD while reducing taxable income. Instead of taking the full RMD and paying tax on it, my client directed a portion of their IRA withdrawal straight to charity—completely bypassing their tax return.

The result? They met their RMD requirement, supported causes they care about, and avoided a big tax hit. Since QCDs don’t count as taxable income, they also kept their Medicare premiums lower and prevented Social Security from being taxed at a higher rate.

If you’re over 70½ and charitably inclined, this is a no-brainer.

👉 Key Takeaways About QCDs:

• Tax-Free Giving: The amount given to charity is not counted as taxable income.

• Satisfy RMDs Smartly: Instead of taking an RMD and paying taxes, redirect it tax-free.

• Lower Your AGI: This can help reduce taxes on Social Security and Medicare premiums.

• No Itemizing Needed: Unlike standard charitable deductions, QCDs benefit everyone, even if you take the standard deduction.

🚨 What to Watch Out For:

• The annual QCD limit is $100,000 per person.

• You must send funds directly to a 501(c)(3) charity (not to a Donor-Advised Fund).

• You can’t receive any goods or services in exchange.

Using a Donor-Advised Fund (DAF) to Maximize Giving & Tax Savings

Now, what about donations that exceed the QCD limit? Or situations where you want to bunch several years' worth of charitable contributions into one tax year for maximum deduction? That’s where a Donor-Advised Fund (DAF) comes in.

In this case, my client also had a high-income year due to a one-time business sale. They didn’t want to pay unnecessary taxes—but they also weren’t ready to distribute a huge sum to charities all at once.

• The solution? They contributed a lump sum of appreciated stock to a Donor-Advised Fund. This allowed them to:
  Get an immediate tax deduction in the year of contribution

•  Avoid capital gains taxes on appreciated stock

• Spread out their charitable donations over multiple years

This strategy turned what would have been a painful tax bill into a highly strategic charitable giving plan.

👉 Why DAFs Are a Game-Changer:

• Immediate Tax Deduction: Get the full deduction in the year you contribute, even if you donate funds to charities over time.

• Bunching Strategy: If you don’t itemize deductions annually, you can “bunch” several years’ worth of giving in a high-income year to exceed the standard deduction threshold.

• Donate Appreciated Assets: Avoid capital gains tax and maximize your giving impact.

• Flexibility & Control: Decide when and how much to give over time.

💡 Pro Tip: Many people use commercial DAFs (like Fidelity Charitable or Schwab Charitable), but your local community foundation may offer even better flexibility and support for causes in your area.

The Perfect Pairing: QCDs + DAFs

By combining these two strategies, my client was able to:
✅ Lower taxable income with QCDs
✅ Take an immediate deduction using a DAF
✅ Avoid capital gains tax on appreciated investments
✅ Spread out charitable giving over time while optimizing tax savings

This approach works particularly well in two common situations:

1️⃣ Managing RMDs in Retirement:
If you’re required to take RMDs but don’t need all the income, use QCDs to donate tax-free. Then, for any additional charitable giving, use a DAF to smooth out tax benefits.

2️⃣ High-Income Year Tax Planning:
If you have a windfall year—perhaps from selling a business, a large bonus, or a sudden influx of taxable income—a DAF allows you to offset income immediately while giving at your own pace.

Take Action: Maximize Your Charitable Giving & Minimize Taxes

If you’re facing RMDs, a high-tax year, or simply want to be more strategic about your charitable giving, these tools can be game-changers for your financial plan.

🔹 Are you over 70½ and want to use QCDs?
🔹 Did you have a high-income year and need to offset taxes?
🔹 Interested in using a Donor-Advised Fund for long-term giving?

Let’s build a strategy that maximizes your tax benefits and supports the causes you care about. Book a consultation today, and let’s see how you can give smarter.