Supporting charitable causes in retirement can offer a multitude of intangible benefits, including a higher sense of belonging and purpose, and setting an example for future generations. There can be practical benefits too. “If you are philanthropically inclined, charitable giving can potentially provide significant tax savings,” says Sander Bleustein, an advanced planner at Fidelity.
Two popular options for retirees who want to support causes are a donor-advised fund (DAF), which allows you to donate a wide variety of assets as well as cash, and a qualified charitable distribution (QCD), where a donation is transferred directly from your IRA. Both these strategies offer advantages as well as restrictions that make them more suitable for certain donors.
The following guide can help you decide whether a DAF or a QCD—or a combination of the 2—is appropriate to help you maximize your charitable donations and tax benefits.
What is a donor-advised fund?
A donor-advised fund, or DAF, is a charitable giving vehicle sponsored by a public charity. There are a number of public charities, including Fidelity Charitable,® that sponsor DAFs.
With a DAF, you make an irrevocable contribution to the public charity that sponsors the DAF and your donation may be eligible as an itemized tax deduction. DAF sponsors typically accept donations in the form of cash, stocks, bonds, ETFs, mutual funds, or even, in many cases, non-publicly traded assets such as crypto, private business interests, and private company stock. Once your DAF has been funded, you can recommend grants over time to any IRS-qualified public charity. Grants cannot be used to support non-charitable entities or be used to satisfy binding pledges; however, grants can be used to satisfy non-binding pledges.
To provide a source of funding for the long-term support of the charities you care about, you can recommend how your donations are invested within the DAF and make grant recommendations later. This will allow for potential tax-free growth and potentially enable you to provide more funding to the charities that you care about. “A donor-advised fund can be compared to a charitable investment account in terms of its potential for tax benefits and philanthropic impact,” says Bleustein.
What are the benefits of a donor-advised fund?
Donor-advised funds offer a great deal of flexibility, says Bleustein. There are no age requirements to open one, and, depending on the sponsoring charity you choose, initial minimum contributions can be very low or even $0.
Tax efficiency: Assuming you itemize deductions on your federal tax return, when you donate cash to a DAF-sponsoring charity, you can generally deduct the donation up to 60% of your adjusted gross income (AGI). Other types of assets are generally deductible at fair market value, up to 30% of your AGI, provided you have held them for more than a year and the asset is at a gain. “Donating appreciated investments to a DAF-sponsoring charity can also offer the opportunity to reduce the capital gains tax, whether you itemize or not,” Bleustein says. Assets held at a loss may provide more tax benefits if sold to cash and the proceeds donated.
Even if you are not already itemizing deductions, your charitable gift may change the math such that it makes sense to do so, with a strategy known as “bunching,” or concentrating charitable deductions in a single year. That way, you may receive a tax benefit on a portion of your donations while maintaining the ability to grant over multiple years as if you were donating in those years.
Simple recordkeeping: A DAF can help streamline your recordkeeping by consolidating your tax receipts and grant history in one centralized, online location. DAFs also generally allow you to remain anonymous when you recommend grants to charities.
Legacy planning: You can establish a DAF in your family's name and recommend successors to continue your family's legacy of philanthropic giving. Additionally, you can easily name the DAF as part of your retirement account beneficiaries without the hassle of changing specific charities as you change your mind.
Potential for impact over time: Donors are able to recommend how the DAF assets are invested, and most DAF sponsors offer a variety of investment options. Your assets can potentially grow tax-free, allowing for an even larger donation to your causes down the road.
There are also a few restrictions for donor-advised funds to keep in mind. While you choose where to make grant recommendations, the sponsoring charity has ultimate control over the grants. In addition, DAF sponsors typically charge administrative fees.
If you’re considering a DAF, it’s important to carefully research potential providers, taking into consideration minimum investments, fees, and investment options. This quiz can help you determine if a DAF may be right for you.
What is a qualified charitable distribution (QCD)?
A QCD allows individuals 70½ years and older to directly contribute from an IRA to a qualified charity without it counting toward your taxable income. For 2024, the maximum annual distribution amount that can qualify for a QCD is $105,000; in 2025, this amount grows to $108,000. If you’re a joint tax filer, both you and your spouse can make a $105,000 QCD from your own IRAs, for a potential total of $210,000 (or $216,000 in 2025). If you are age 73 or older and are required to take an RMD from your traditional IRA, this charitable distribution can satisfy your RMD for the year.
Eligible account types for QCDs include traditional and rollover IRAs, inherited IRAs, SEP IRAs (inactive plans only), and SIMPLE IRAs (inactive plans only). Under certain circumstances, QCDs can be made from a Roth IRA. It’s important to note that you can’t make a QCD directly from a 401(k)—but you can roll over funds to an eligible IRA to then make the donation.
You also have the flexibility to direct a portion of the QCD to a charitable trust or gift annuity, potentially splitting the donation between a benefit for the charity and a benefit for yourself or your beneficiaries. In 2024, the lifetime gift amount for an individual is $53,000. In 2025, that amount will be $54,000. The gift counts toward your QCD limit for the year.
What are the benefits of a qualified charitable distribution?
For investors who don’t need the funds from their RMD, QCDs offer a unique opportunity to optimize the tax benefits of giving.
Lowering taxable income: Since qualified charitable distributions are not included in your income, it can be an important strategy for those who take the standard deduction, notes Bleustein. “One thing I appreciate about a QCD is for clients that cannot itemize their deductions, they still get a reduction in income compared to taking their RMD,” he says.
Not counted toward donation limitations: QCDs may be particularly appealing if you are already close to your AGI-based charitable deduction limitations. Because the QCD is never reported as income or as a deduction, it is not counted against the charitable limits.
Avoiding tax bracket creep: RMDs can push you into higher tax brackets as well as impact surcharges and surtaxes. If your income is above a specific limit, the federal government adds a surcharge to your monthly Medicare premium.
QCDs have limitations. They are only an option for investors age 70½ and older. Certain charities are not eligible to receive QCDs, including donor-advised funds, private foundations, and supporting organizations.
Finally, it is very important to correctly execute a QCD; the donation must be made directly by the trustee of the IRA to the eligible charity. If the distribution check is payable to you, it can't be counted as a QCD and will instead be considered taxable income.
Should I choose a donor-advised fund or a qualified charitable distribution?
Depending on your approach to charitable giving and desired short- and long-term goals, there are key considerations to be made for each strategy.
The chart below is a quick guide to help you compare a QCD to a DAF.
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Can I use both a donor-advised fund and a qualified charitable distribution?
If you’re charitably inclined, you don’t have to choose between a DAF and a QCD—it’s possible to donate to both, even in the same tax year. Just remember that you can’t put QCD assets into a donor-advised fund.
Charitable giving can be an important part of a holistic financial plan. Consider consulting with a financial professional to review your wishes tied to immediate and future tax mitigation, family involvement in giving, and legacy and estate planning.