Qualified Charitable Distributions (QCDs) vs. Donor-Advised Funds (DAFs): Which one is best for you?

Are you charitably minded and looking to save on taxes? If so, this article is for you.

With the One Big Beautiful Bill Act making permanent the changes in the Tax Cuts and Jobs Act of 2017, many taxpayers who previously itemized deductions now take the standard deduction, which means they may lose out on the tax benefits of charitable donations.

There are two powerful strategies that can help you give to charity while maximizing the tax benefits: Qualified Charitable Distributions (QCDs) and Donor-Advised Funds (DAFs).

Which one is right for you? Let’s break them down.

Qualified Charitable Distributions (QCDs)

What is a QCD?

A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an Individual Retirement Account (IRA) to a 501(c)(3) qualified charity. QCDs allow individuals aged 70½ or older to donate up to $108,000 per year in 2025 (indexed for inflation to $115,000 for 2026) without counting the distribution as taxable income.

Benefits of QCDs:

Fulfills Required Minimum Distributions (RMDs): Individuals aged 73 or older must take RMDs from their IRA. A QCD can satisfy all or part of this requirement without increasing taxable income.
Reduces AGI: QCDs do not count as taxable income when used to satisfy all or part of a Required Minimum Distribution (RMD). This provides an immediate reduction in Adjusted Gross Income (AGI), which will also lower a taxpayer’s Medicare Modified Adjusted Gross Income (MAGI). As a result, QCDs may help reduce Medicare premiums and the taxable portion of Social Security benefits, depending on overall income levels.
Immediate Charitable Impact: The funds go directly to the charity for its use at the time of the contribution.
No Need to Itemize Deductions: Unlike traditional charitable donations, QCDs provide a tax benefit without the need to itemize deductions.
Can Reduce Future RMDs: RMDs are calculated based on the IRA’s value as of December 31 of the prior year, donating funds through a QCD reduces both the account balance and the future growth on those dollars—thereby lowering future RMD amounts.

Limitations of QCDs:

Age restriction: The donor must be at least 70 ½ years old to donate using QCDs. Distributions made earlier do not qualify.

IRA-Only Limitation: QCDs can only be made from traditional IRAs (and inactive SEP or SIMPLE IRAs). They cannot be made directly from 401(k), 403(b), or active SEP/SIMPLE plans unless the assets are first rolled into an IRA.

Donation Limit: The maximum annual QCD is $108,000 per taxpayer in 2025 (indexed for inflation to $115,000 in 2026). Married couples filing jointly can each contribute up to that amount from their own IRA.

Eligible Charities Only: QCDs must go directly to a501(c)(3) public charity. Theycannotbe made toDonor-Advised Funds, private foundations, orsupporting organizations.

Donor-Advised Funds (DAFs)

What is a DAF?

A Donor-Advised Fund (DAF) is a charitable giving account that allows donors to contribute funds, receive an immediate tax deduction, and then recommend grants to charities over time. Many donors pre-fund several years’ worth of charitable giving with one contribution, then direct gifts from the DAF in future years.

Benefits of DAFs:

Immediate Tax Deduction: Donors receive a tax deduction, limited as detailed below, in the year they contribute to the DAF if they have Schedule A deductions that amount to more than the standard deduction. There is no tax deduction when the funds are distributed from the DAF account.
Investment Growth Potential: Contributions to a DAF can be invested, potentially growing tax-free before distribution to charities to provide a greater impact.
Flexible Giving Timeline: Unlike QCDs, you don’t have to distribute all funds directly to a specific qualified charity immediately. You can spread donations over several years. Donors can decide which charities to support and distribute funds over time. Like QCDs, the donations must be provided to 501(c)(3) charitable organizations.
Legacy Planning: DAFs can be used to create a long-term charitable giving plan, allowing family involvement and succession planning.
Asset Rebalancing: DAF plans accept a variety of assets including cash, stocks, publicly traded securities, private equity, and cryptocurrency. Gifting appreciated assets avoids capital gains tax and removes the asset from your taxable estate once contributed.

Limitations of DAFs:

Itemized Deduction Required: The donor must have at least $15,000 of tax, interest, and charitable deductions to get over the standard deduction if filing single ($30,000 if married filing jointly).

Tax deduction Limits: Once a donor makes it over the standard deduction limit, the tax deduction for any contributions to a DAF is limited to 60% of AGI for cash and 30% of AGI for long-term appreciated assets. Any unused charitable deduction would be carried forward to future years.

Which Option is Best for You?

The right choice depends on your financial situation and tax strategy.

If you are 70 ½ with charitable giving goals and want to manage future RMDs, a QCD may be ideal for you.
If you are required to take RMDs, a QCD can be an effective way to reduce your AGI immediately.
If you itemize deductions and want to spread charitable giving over time, a DAF offers flexibility and potential tax-free investment growth.

Want to maximize your charitable impact while optimizing your tax strategy? Consult with your financial advisor or CPA to determine the best approach for your goals.

Next Steps: How to Start Giving Smarter Today

Discuss with your financial planner whether a QCD or DAF aligns with your tax and estate planning goals.
If you are eligible for a QCD, start planning your direct IRA distributions before year-end to meet RMD deadlines.
If a DAF makes sense, consider donating appreciated assets to maximize tax savings.

Ready to take action? Contact our expert team today to start making the most of your charitable giving!

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