Unpacking QCDs from IRAs vs. Donor-Advised Funds: A Fresh Look at Charitable Giving

Hey there, philanthropist! You’ve got your giving shoes on and a heart full of generosity. You’ve heard about donor-advised funds (DAFs), maybe even dabbled in them, and your financial advisor probably taught you the basics of how to choose the right DAF.

But here’s a twist you might not know, a nugget that could make you go, “Wow, I didn’t know that!” Let’s dive into the difference between Qualified Charitable Distributions (QCDs) from an IRA compared to DAFs, and why understanding this could be a game-changer for your charitable donations and tax deductions.

Qualified Charitable Distributions (QCDs) from Your IRA: The Unsung Hero

You’re 70 and a half or older, and there’s this thing called a QCD. Sounds like a fancy financial term, right? It’s actually a supercharged method for charitable giving from an IRA account.

What’s the Magic? 

A QCD lets you transfer up to $105,000 annually (2024 figure) as a charitable contribution from your IRA directly to a charity. No tax on that IRA distribution, and it counts toward your required minimum distribution (RMD). That’s a two-for-one deal!

Why Should You Care?

1. Zero Tax: Keep Uncle Sam’s hands off your hard-earned money. By keeping the distribution out of your taxable income, you’re not just giving—you’re giving smart.
2. RMD Savior: That required minimum distribution can be a hassle. Use a QCD, hit two birds with one stone, and avoid penalties.
3. Easy Peasy: Straightforward, no fuss. Set it up, and you’re done. Many custodians even allow you to create a checkbook attached directly to your IRA.

The Catch?

1. Age Is Just a Number (But It Matters Here): You have to be 70 and a half or older.
2. Cap Limit: $105,000 per year max in 2024 (this will likely increase each year). 
3. Direct Only: The money must go straight from your IRA to the charity. 

Glassman Wealth Pro Tip: If you’re hitting RMD age and don’t need the extra cash, a QCD is your secret weapon for a charitable contribution from your IRA. Your charity wins, and so do you with the tax deductions.

Learn more: 

• Your Guide to Required Minimum Distributions (RMDs)
• Top RMD Mistakes and How to Avoid Them 

Charitable Contributions with Donor-Advised Funds (DAFs): The Flexible Friend

You’ve heard about DAFs, maybe even thought about setting one up. 

What’s the DAF Allure? 

You can likely take an itemized tax deduction now, and you get to play philanthropist later. Put your money in, get your tax deduction, and decide when and where to donate the funds.

Why DAFs Rock:

1. Tax Benefits Up Front: Contribute and snag that potential tax deduction immediately. That can help when you’re in a high tax bracket.
2. Total Control: You decide when to give. Today, tomorrow, next year—it’s up to you.
3. Grow It: Invest the funds, let them grow tax-free, and give more later.
4. Gift Securities: Donate appreciated securities to your DAF and forget about paying taxes on those long-term gains.

The Fine Print:

1. No Take-Backs: Once in, it’s in. You can’t pull the funds back for personal use.
2. Fees, Fees, Fees: Admin and investment fees can potentially nibble away at your funds.
3. Timing: You get the deduction now, but the eventual charity might wait for the cash.

Glassman Wealth Pro Tip: Got a big bonus or a high-income year? Funnel some into a DAF for that tax deduction, and take your time deciding how to make the world a better place.

Build your knowledge further on how you can best use DAFs for strategic charitable giving:

• Your Guide to the Donor-Advised Fund: A Powerful Tool for Charitable Giving 
• Rethinking DAFs: Impactful Charitable Contribution & Tax Benefits
• Choosing the Right Donor-Advised Fund for High-Net-Worth Individuals
• How DAFs Can Maximize Charitable Donations & Tax Deductions

The Big Picture: How to Decide Between QCDs and DAFs

Choosing between QCDs and DAFs isn’t about right or wrong – it’s about what’s right for you. Here’s the kicker:

• QCDs: Consider if you’re 70½ or more, need to knock out your RMD, and love the idea of tax-free giving.
• DAFs: Likely ideal if you crave flexibility, an immediate tax break, and the chance to grow your donation pot.

Glassman Wealth Pro Tip: Talk to your financial advisor and tax professional before making these moves. Seriously. When done right, these strategies can enhance your charitable contributions and keep your finances in tip-top shape. Imagine the impact of your generosity when it’s strategically planned. 

Ready to make your charitable dollars work harder? Dive in and make a difference—the smart way. Our experienced financial advisors can help you navigate the complexities of donor-advised funds and qualified charitable distributions from your IRA and select the best option for your unique needs. Schedule a meeting to discuss your goals and explore the possibilities.