Key Takeaways:
- The QCD Upgrade: Qualified Charitable Distributions limits are now indexed for inflation (up to $108,000 in 2025), allowing retirees over 70½ to lower RMDs and taxable income significantly.
- Stock Over Cash: For high-income professionals with equity compensation, donating appreciated stock remains one of the most efficient ways to rebalance a portfolio tax-free.
- Strategic "Bunching": With higher standard deductions, consolidating multiple years of giving into one year via a Donor-Advised Fund is a mathematical necessity for many to itemize deductions.
Introduction
With Giving Tuesday upon us, it’s a natural moment to pause and reflect on impactful giving. This aligns perfectly with the Purpose Built mission: addressing complex financial concerns so you can live a more purposeful life. Often, that purpose involves meaningful contributions to the causes that define your values.
However, for high-earning professionals and executives, charitable giving shouldn't just be an emotional decision, it should be a strategic one. Whether you are a seasoned philanthropist or establishing a new family legacy, "how" you give is just as important as "how much." By utilizing the right tax-advantaged vehicles, you can amplify your generosity while optimizing your own financial health.
Here are seven intelligent strategies to elevate your contributions.
1. Qualified Charitable Distributions (QCDs): The Retiree's Superpower
If you are over age 70½, the QCD remains the gold standard for giving. It allows you to transfer funds directly from your IRA to a qualified charity, bypassing your taxable income entirely.
The Update: Thanks to recent legislation (SECURE 2.0), the annual limit is no longer capped at $100,000. It is now indexed for inflation (rising to $108,000 for 2025 and 2026). Furthermore, there is a new, one-time opportunity to use up to $53,000 of a QCD to fund a split-interest entity, like a Charitable Gift Annuity (CGA), providing you with income for life before the remainder goes to charity. See the example below with #5 outlining why you might want to do this.
Crucially, QCDs count toward your Required Minimum Distributions (RMDs). This lowers your Adjusted Gross Income (AGI), which can help keep you in a lower tax bracket and potentially avoid the Medicare IRMAA surcharge on your premiums.
2. Donor-Advised Funds (DAFs): Your Philanthropic Investment Account
Think of a Donor-Advised Fund as a dedicated investment account for your charitable capital. You contribute assets (cash, stocks, or crypto) to the fund and receive an immediate tax deduction for the full fair market value in the year of the contribution.
However, you are not forced to distribute the funds immediately. You can invest the assets within the DAF for tax-free growth, directing grants to your favorite charities over time—playing "Santa Claus" on your own schedule while securing the tax benefit when you need it most (e.g., in a high-income year).
If you want to learn more about how to set up a Donor-Advised Fund and about the importance of charity screening, check out our article about that here.
3. "Bunching" Donations: Overcoming the Standard Deduction
For many high earners, the Tax Cuts and Jobs Act made itemizing deductions difficult due to the high Standard Deduction (approx. $31,500 for married couples in 2025). If your total itemized deductions don't exceed this threshold, your charitable gifts provide zero tax benefit.
The Strategy: Instead of giving $15,000 annually, consider "bunching" three to five years' worth of donations into a single year (e.g., contributing $75,000 to a DAF). This allows you to surpass the standard deduction threshold significantly for that specific year, maximizing your tax savings. You can then use the DAF to distribute the funds to charities annually, smoothing out your giving while front-loading the tax benefit.
4. Appreciated Stock: The Executive's Best Move
Do you hold highly appreciated stock positions, perhaps from years of RSUs or exercised options? Writing a check for charity is often the least efficient way to give.
By donating appreciated stock directly to a charity (or your DAF), you avoid the capital gains tax you would have incurred by selling the stock. Plus, you generally receive a tax deduction for the full fair market value, not just your cost basis. This is a "double dip" tax benefit that allows you to rebalance your portfolio and support your causes without triggering a tax bill.
5. Charitable Remainder Trusts (CRTs) and Charitable Gift Annuity (CGA): Income Now, Impact Later
If you have highly appreciated assets (like real estate or a concentrated stock position) and are concerned about retirement income, a Charitable Remainder Trust (CRT) offers a sophisticated solution.
You transfer the asset into the irrevocable trust, which sells the asset tax-free (avoiding immediate capital gains). The trust then pays you (or your spouse) an income stream for a set term or life. Upon your passing or the end of the term, the remainder goes to the charity. It’s a powerful tool for converting illiquid assets into retirement income while establishing a major philanthropic legacy.
Here is an example of how this might work:
Example: Turning a Required Minimum Distribution (RMD) into Lifetime Income
The Scenario: Meet "Robert," a 75-year-old retired executive with a $3 million IRA. He is subject to Required Minimum Distributions (RMDs) that force him to take more taxable income than he actually needs for his daily living expenses. This extra income pushes him into a higher tax bracket and triggers higher Medicare premiums (IRMAA).
Robert wants to support his alma mater, but he also likes the security of guaranteed income streams to offset market volatility in his portfolio.
The Strategy: Instead of taking $54,000 of his RMD in cash and paying roughly $18,500 in federal and state taxes on it, Robert utilizes the one-time "Legacy IRA" provision. He directs $54,000 (the maximum one-time election amount in 2025) of his RMD directly from his IRA to his university to fund a Charitable Gift Annuity (CGA).
The Result:
- Tax Savings: The $54,000 counts toward his RMD for the year but is excluded from his taxable income. This saves him thousands in immediate taxes and helps keep his Adjusted Gross Income (AGI) lower.
- Lifetime Income: In exchange for the gift, the university pays Robert a fixed annuity rate (often 6%–7%+ at his age) for the rest of his life. He essentially turns a tax liability into a guaranteed income bond. This amount is still taxable but he has now spread it out over a longer period of time.
- Philanthropic Impact: Upon Robert's passing, the remaining funds in the annuity go directly to the university to fund a scholarship in his name, cementing his legacy.
Why it works for him: Robert effectively deferred the tax liability of his RMD while still retaining the economic benefit of the cash flow for his lifetime.
6. Complex Assets: Real Estate and Collectibles
Cash isn't king when it comes to taxes. Donating complex assets, such as investment real estate, private business interests, or valuable collectibles (like that '52 Mantle card), can be incredibly tax-efficient. Like stock, donating these assets can help you avoid capital gains taxes on the appreciation. While the appraisals and logistics are more complex, the tax arbitrage can be substantial for the right donor.
7. Life Insurance: Repurposing Old Policies
Life insurance is vital for protection during your working years, but as you approach financial independence, those policies may no longer be necessary.
You can transform a policy into a charitable tool by naming a charity as the beneficiary or, for immediate benefits, transferring ownership of the policy to the charity. Transferring ownership allows for a current-year income tax deduction (generally equal to the lesser of the policy’s value or your basis) and removes the asset from your taxable estate, possibly a smart move for those navigating estate tax exemptions.
Intentionality in Giving
Giving Tuesday is a reminder, but your wealth strategy operates 365 days a year. The right strategy can make your charitable dollars go further for the causes you love while protecting the wealth you’ve built.
For tailored advice on how to integrate these strategies, especially complex moves like QCDs or CRTs, into your broader financial plan, contact Purpose Built. We are here to ensure your generosity is as impactful and efficient as possible.
Frequently Asked Questions (FAQ)
Q: Can I use a QCD if I am not taking RMDs yet?
A: Yes. You can begin making Qualified Charitable Distributions (QCDs) at age 70½, even though RMDs currently do not begin until age 73. This is a great way to reduce the future balance of your IRA tax-free before RMDs force taxable withdrawals.
Q: What is the contribution limit for a Donor-Advised Fund?
A: Generally, you can deduct up to 60% of your Adjusted Gross Income (AGI) for cash contributions and up to 30% of your AGI for contributions of appreciated securities. Any excess can generally be carried forward for five tax years.
Q: Why shouldn't I just sell my stock and donate the cash?
A: If you sell appreciated stock, you trigger capital gains tax on the profit. You then have less cash net-of-taxes to donate. By donating the stock directly, the charity gets the full pre-tax value, and you get a deduction for that full value (assuming you've held the stock for more than a year).
Q: Is "bunching" worth the administrative effort?
A: For high-income households who consistently donate but take the standard deduction, yes. Bunching can unlock thousands of dollars in tax savings that are otherwise lost because your donations are essentially "swallowed" by the standard deduction.
Q: Does Purpose Built handle the setup of CRTs or DAFs?
A: We guide you through the strategy and selection process. For DAFs, we help you open and manage the investment allocation. For complex trusts like CRTs, we collaborate with estate attorneys to draft the documents while we manage the financial integration into your overall plan.
Final Thoughts: Moving from Intention to Impact
Philanthropy is deeply personal, but maximizing its impact requires the same level of strategic planning you apply to your investments or business. By leveraging tools like Qualified Charitable Distributions, Donor-Advised Funds, and appreciated stock donations, you transform your giving from a simple transaction into a powerful component of your overall wealth strategy. These methods allow you to give more to the causes you care about while keeping less of your hard-earned wealth exposed to unnecessary taxes.
However, the tax code is complex and constantly evolving. Navigating rules around "bunching," split-interest entities, and inflation-adjusted limits requires precision. A misstep can mean a lost deduction or an unexpected tax bill.
At Purpose Built, we specialize in integrating these advanced charitable strategies into a comprehensive financial plan. We help high-income professionals and families ensure their generosity is as tax-efficient as it is meaningful. Whether you are looking to lower your RMDs, diversify a concentrated stock position, or establish a multi-generational legacy of giving, we can guide you through the options and execution.
Don't let tax inefficiencies diminish the power of your gift. Contact Purpose Built today to design a philanthropic strategy that amplifies your impact and aligns with your long-term financial goals.
About the Author
Sean Lovison, CPA, CFP®, is a fee-only financial planner serving clients virtually nationwide but based in Moorestown, New Jersey. After spending 14 years as a corporate chief financial officer (CFO), receiving and designing compensation plans, he decided to help others navigate their plans.
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