QCDs and donor-advised funds: giving to charity with less tax

If you give to charity every year, how you give can matter as much as how much. Most retirees take the standard deduction, so their gifts bring no tax benefit at all. Two tools change that: qualified charitable distributions (QCDs) from an IRA, and donor-advised funds (DAFs) combined with "bunching".

This guide explains both, with an example of each, and how they fit with required minimum distributions.

Why many gifts bring no tax benefit

A charitable gift only lowers your income tax if you itemize deductions. You itemize when your deductions add up to more than the standard deduction. For 2026, a married couple filing jointly gets $32,200, plus $1,650 for each spouse 65 or older.

Many retirees have paid off their mortgage, so their itemized deductions fall short. Their gifts are made with after-tax money and nothing comes back.

Two newer rules apply from 2026:

• People who don't itemize can deduct cash gifts to public charities, up to $2,000 on a joint return. Gifts to donor-advised funds don't qualify.
• People who do itemize can only deduct gifts above 0.5% of their adjusted gross income.

Qualified charitable distributions

From age 70.5, you can direct money from an IRA straight to a qualifying charity. The QCD isn't included in your income, and it counts toward your required minimum distribution for the year.

Leaving the gift out of income is often worth more than a deduction:

• It works whether or not you itemize.
• It lowers your adjusted gross income, which can reduce Medicare IRMAA surcharges two years later.
• It can reduce how much of your Social Security is taxed.

The rules

• You can give up to $111,000 per person in 2026. A married couple can each give that much from their own IRAs.
• The money must go directly from the IRA to the charity. A check made out to the charity and sent by your custodian works.
• QCDs can't go to a donor-advised fund or a private foundation.
• Once in your life, you can send up to $55,000 as a QCD to a charitable remainder trust or a charitable gift annuity.
• Deductible IRA contributions you make after age 70.5 reduce the amount of later QCDs you can exclude.
• You don't get a deduction for a QCD as well. That would count the gift twice.

Worked example: a QCD

Ruth and Ken are 74 and file jointly. They give $12,000 a year to their church and local charities. Their required minimum distributions are $40,000 this year, and they're in the 22% bracket.

Their itemized deductions would be $8,000 of state and property taxes plus $12,000 of gifts, $20,000 in total. Their standard deduction is far higher, so their gifts save nothing today. Under the new rule for non-itemizers, they could deduct $2,000 of cash gifts.

If they give the $12,000 by QCD instead:

At 22%, the QCD saves about $2,200 more federal tax a year than writing checks. It may also save on Medicare premiums and state tax.

Donor-advised funds and bunching

A donor-advised fund is an account at a sponsoring charity. You contribute money or investments and take the deduction in that year. Then you recommend grants to charities over time, whenever you like.

The main tax use is bunching. Instead of giving the same amount every year, you put several years of gifts into the fund at once. That year, your deductions clear the standard deduction by a wide margin. In the years between, you take the standard deduction, while the fund keeps paying your charities.

Give appreciated shares, not cash

If you have investments in a taxable account that have grown a lot, give shares instead of cash. You deduct the shares' market value, and nobody pays tax on the gain. The deduction for appreciated shares is limited to 30% of your adjusted gross income in a year. Cash gifts to public charities are limited to 60%. Unused deductions carry forward for 5 years.

Worked example: bunching

Sam and Lee are 60 and file jointly, with $200,000 of income. They give $15,000 a year, and pay $15,000 of state and property taxes and $6,000 of mortgage interest.

Giving every year, their gifts are deductible above the 0.5% floor of $1,000. They itemize $35,000 a year.

Bunching three years of gifts, $45,000, into a DAF in the first year:

Bunching adds $24,400 of deductions over three years. In the 22% bracket, that's about $5,400 of federal tax. Their charities receive the same $15,000 a year from the fund.

Putting them together

The two tools suit different stages:

• Before 70.5: bunching through a DAF, ideally with appreciated shares, is the main option.
• From 70.5: QCDs usually win for gifts to operating charities. You can still use a DAF for gifts of appreciated shares, but not for QCD money.

If you have a DAF already, consider which charities you'll pay from it and which by QCD.

How the app handles charitable giving

Mark expenses as charitable in your spending, or add a charity goal. In Plan, under Taxes and where you live, the Charitable giving card has two settings.

• QCDs: none, a yearly amount, or all your giving by QCD once an IRA owner reaches 70.5. QCDs are made each December from traditional and inherited IRAs, within each owner's yearly limit. They count toward the required distribution and stay out of income.
• Donor-advised fund: give several years of planned giving at once, every chosen number of years. You can fund it with appreciated shares or cash. With shares, the app gives the long-term lots with the most gain per share, up to the 30% limit, then cash. Grants from the fund aren't counted as spending again. Bunching stops once all your giving goes by QCD.

The tax engine applies the deduction limits and the 5-year carryforward. It treats all gifts as going to public charities. Gifts to private foundations aren't modeled.

Frequently asked questions

Can a QCD come from a 401(k)?

No. QCDs come only from IRAs. You can roll 401(k) money into an IRA first, then make QCDs from the IRA.

Is the DAF balance still mine?

No. Once contributed, the money belongs to the sponsoring charity. You keep the right to recommend grants. The app leaves the fund out of your net worth and your estate.