Goals-based planning
1 minute read
Qualified charitable distributions (QCDs)1 have become a popular way to unlock the tax savings of philanthropic gifts. Indeed, you may have read about this strategy in the news or had it recommended to you by a friend.
However, for high-net-worth individuals, gifting QCDs from an individual retirement account (IRA) may not even be an option (one has to be at least 70½ to make a QCD) and even if it is, it constitutes but one way to enhance the tax efficiency of charitable donations.
Another, often more effective method for individuals who itemize deductions, is to gift appreciated securities held for more than one year.
Here’s how to know which strategy best fits your circumstances.
Donating publicly traded stocks—especially if the basis is very low relative to market value at the time of the gift—is generally the most tax-efficient donation method available. Consider the following:
When gifting qualified appreciated stock, which is a stock held long-term (typically, more than one year), you would not only get an income tax deduction based on the fair market value of the donated asset, but would also not have to pay capital gains tax on that asset’s unrealized appreciation.
Case study example
A couple in the highest tax bracket making a cash gift of $100,000 would enjoy a tax savings of up to $37,000 (compared with making no gift at all). However, if they were to make a similarly valued gift ($100,000) with qualified appreciated stock that has a basis of $50,000, the tax savings would increase by up to $11,900.
Moreover, donations of even modestly appreciated securities can be more beneficial than other forms of gifting.
Thanks to widespread coverage in the financial press, QCDs have become very popular with retirees as a systematic way to donate directly from IRAs, potentially reducing taxable required minimum distributions (RMDs).2
For those over the age of 70½, QCDs are also an attractive way to fund charitable goals, provided: these distributions come directly from IRA assets; are limited to $108,000 in 2025 (adjusted annually for inflation); and go directly to a public charitable organization. They cannot be directed to DAFs or private foundations.
QCDs offer these benefits:
Reducing your AGI—Because QCDs come directly from either IRA distributions or RMDs, they effectively serve as an adjustment to total income.
Reducing total income in this way is valuable because total income is the starting point in calculating AGI, a reduction of which benefits taxpayers eligible for, or subject to, phaseouts, deduction limits or exposure to net investment income tax—all of which are determined based on a taxpayer’s AGI.
The ancillary tax savings associated with QCDs won’t often surpass those of a donation made with appreciated securities. Given the thresholds and potential tax savings, this is especially true for high-net-worth and ultra-high-net-worth retirees.
Using Medicare premiums as an example: Dropping from the highest to the second-highest IRMAA threshold results in approximately $1060 in annual savings for a married couple—a relatively small amount, given the tax savings that could be achieved by gifting appreciated securities.
Also: Funding charitable gifts from long-term appreciated securities in a taxable portfolio as compared to QCDs from an IRA is not a binary decision. These strategies can be used in concert, depending on your appetite and capacity for charitable giving each year.
In the event you are deciding between the two options, you might consider (with your tax advisor):
Moving away from a reactive giving strategy requires a deeper conversation about your family’s charitable priorities, including identifying:
Once these decisions have been made, the family can formulate a thoughtful approach to selecting the assets and planning techniques that will achieve the optimal tax outcome.
Your J.P. Morgan team can provide meaningful insight and assistance to help you and your family achieve your desired philanthropic goals. You should also speak with your tax advisor about which actions may be right for you.
JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.
1For IRA owners over age 70½, a QCD of up to $108,000 per taxpayer can be made in 2025.
2If you own a retirement account and have reached age 73, generally you will need to take an annual RMD each year before December 31. Prior to the SECURE 2.0 Act passed in 2022, RMDs began at age 72 or 70½.
3For single filers, the threshold is $200,000; for individuals that are married filing separately, the threshold is $125,000.
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