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Financial Literacy

For taxpayers who are not required to take their Required Minimum Distributions (RMDs) from retirement accounts, I typically recommend a Donor Advised Fund (DAF) depending upon their tax situation. A DAF is a great way to get a large charitable deduction in the current tax year. It also allows the donor to invest the funds and let the money grow tax deferred. Each year the donor can send money to the charity of their choice from their DAF. This eliminates the need to write personal checks and keep track of contributions that have been sent to charities throughout the year. A DAF is a great way to fund charities.

For taxpayers who need to take their RMDs each year, I typically recommend that they make gifts through the RMD vs writing personal checks to charities. When a taxpayer sends money directly from their RMD to the charity it is called a Qualified Charitable Distribution (QCD). When this is done, the QCD portion of the RMD is not taxed since it goes directly to the charity. This is typically more beneficial than direct payment to a charity due to itemization of deductions and phase-out limitations. A QCD donation is a great charitable gift strategy for those required to take RMDs.

Seth Margolies, CPA
Dallas, TX

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