Are qualified charitable distributions always the best tax-saving move?

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.

Gifting publicly traded appreciated securities: Efficiency and optionality

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:

• There are no age restrictions or dollar limits with this approach
• Appreciated securities can be transferred directly to any form of 501(c)(3) charity, whether a public charity (including schools, museums, churches, and in this context donor-advised funds (DAFs)) or a private foundation
• Deductions are limited to a percentage (20% or 30%, depending on the recipient) of your adjusted gross income (AGI), with a five-year carryforward available for contributions that exceed this ceiling

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.

QCDs: Streamlined giving from IRAs

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 $105,000 in 2024 (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.

• Net investment income tax (NIIT) and AGI management—The 3.8% NIIT applies to net capital gains, dividends, interest and other forms of investment income. Individuals are subject to the NIIT if they have net investment income and a modified AGI above the statutory threshold amount ($250,000 for married couples filing jointly).³ Gifting with a QCD can lower the topline AGI number, making it possible for a taxpayer to stay below the NIIT threshold (or other tax thresholds based on AGI), thereby generating additional tax savings.
  
• Medicare premium savings—For retirees enrolled in Medicare, an indirect reduction in total income resulting from a QCD (compared to a donation of an equivalent amount to charity from other assets) can yield additional benefits: Medicare premiums are means tested through the Income-Related Monthly Adjustment Amount (IRMAA) calculation, which is also based on a modified AGI calculation. Therefore, lowering “above-the-line” income through a QCD can result in annual savings on premiums.
• Standard deduction advantage—The Tax Cuts & Jobs Act expanded the standard deduction through the end of 2025. In 2024, the standard deduction for joint filers is $29,200. Therefore, if a taxpayer’s itemized deductions, which can include charitable giving, fall short of the standard deduction, from a tax perspective, the charitable contributions are less beneficial. Since QCDs amount to a reduction of total income and not an itemized deduction, there is no danger of having charitable gifts absorbed by the standard deduction, and reducing the tax benefit of the donation.

QCDs are not always the best way to give

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 $492 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):

• Does a QCD lead to a lower AGI, resulting in significant tax savings or lower Medicare premiums that are more economically valuable than avoiding unrealized gains?
• Would your donation exceed the standard deduction amount in a given tax year?
• Would it be more beneficial to align larger charitable gifts with higher income years?
• How important is involving your family or the next generation in your giving strategy, perhaps through a charitable vehicle such as a DAF or a private foundation?

Moving toward an intentional giving strategy

Moving away from a reactive giving strategy requires a deeper conversation about your family’s charitable priorities, including identifying:

• Which causes you most wish to support
• How much of your wealth will be earmarked for philanthropy
• When they would like to endow these causes

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.

We can help

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.