Every client review meeting I run starts the same way: a clear agenda, a shared game plan, and enough structure to make sure we cover every meaningful detail.
But recently, something happened over breakfast that reminded me why the best financial planning conversations don’t always follow the agenda.
A longtime client (and friend) looked up from her coffee with a sudden realization:
“Todd, I should’ve told you beforehand, but I just wrote a personal check to my church for $10,000 for a last-minute construction funding project.”
I smiled and told her what I’d tell anyone who’s generous with causes they care about: That’s a wonderful intention.
Then I added the important part:
“Let’s make sure you don’t pay more in taxes than you need to—just because of how the gift was funded.”
The “Tax Trap” of Traditional Giving in Retirement
For many retirees, the instinct is simple: withdraw money from an IRA, move it to the checking account, and write a personal check to the charity.
The problem? Under today’s tax rules, that straightforward approach can quietly reduce—or eliminate—the tax benefit you expected.
1) The standard deduction changed the math
Since the standard deduction increased significantly in recent years, many retirees no longer itemize deductions. If you don’t itemize, charitable contributions made by personal check may not provide an additional federal tax benefit.
So you can end up in a frustrating spot:
- You withdraw funds from an IRA (often taxable as ordinary income)
- You write a check to charity
- You may receive no deduction that actually changes your tax bill—because you’re already taking the standard deduction
2) The IRA withdrawal can raise your AGI—and trigger ripple effects
Even when your charitable intent is solid, the path the money takes matters.
When IRA distributions hit your personal bank account, they typically increase Adjusted Gross Income (AGI). A higher AGI can create a chain reaction that may impact things like:
- Your marginal tax bracket
- Income-based Medicare premium surcharges (often called the Income-Related Monthly Adjustment Amount)
- Taxation of Social Security benefits
Not always—but often enough that it deserves proactive attention.
3) The “hidden cost” can be bigger than people expect
In my friend’s case, the numbers were eye-opening. If the gift was funded through a taxable IRA distribution and she didn’t itemize deductions, the all-in cost could have been meaningfully higher than the $10,000 she intended to give.
To be clear: every tax situation is unique—federal and state brackets, itemizing vs. standard deduction, and Medicare thresholds can all change the outcome. But the broader lesson is consistent:
The same donation can be significantly more tax-efficient depending on execution.
The Workaround Many Retirees Miss: The Qualified Charitable Distribution (QCD)
This is where a strategy called a Qualified Charitable Distribution (QCD) can be incredibly useful.
If you’re age 70½ or older, you may be eligible to direct IRA funds straight to a qualified charity—without the distribution being included in your taxable income, as long as it meets IRS requirements. (Source: IRS Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs),” rev. 2024.)
Here’s the key mechanic: the distribution generally needs to go directly from the IRA to the eligible charity rather than being paid to you first. (Source: IRS Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs),” rev. 2024.)
When structured properly, a QCD can potentially:
- Exclude the distribution from taxable income (rather than relying on an itemized deduction)
- Help manage AGI, which can matter for tax-bracket pressure and income-based Medicare premium surcharges
- Count toward your Required Minimum Distribution (RMD) once you reach the applicable RMD age (Source: IRS Publication 590-B, rev. 2024.)
In other words, it can support what you already want to do—give generously—while also keeping your retirement income plan more efficient.
Racing the Clock: Timing Matters
When I reminded my friend about QCD mechanics, her expression changed.
“I just wrote the check,” she said. “Let me see if the church deposited it yet.”
Right there at the breakfast table, she texted the church treasurer. We continued our meeting, and just as we were wrapping up, her phone buzzed:
“No, we haven’t deposited it yet.”
Perfect timing.
She went straight to the church, retrieved her personal check, and replaced it with a check issued from her IRA custodian made payable to the church.
The result?
- The church still received its vital $10,000 for the construction project.
- But the donation was positioned in a way that may help avoid unnecessary taxes and AGI-related side effects.
That’s not just “tax planning.” That’s goal-focused execution—the kind that protects both your generosity and your long-term strategy.
When a QCD Might Be Worth Discussing
A QCD isn’t for everyone, and not every organization is eligible. But it’s often worth exploring if:
- You’re 70½+ and charitably inclined
- You take the standard deduction (and don’t itemize)
- You’re trying to manage AGI for Medicare premiums or Social Security taxation
- You’re at (or near) RMD age and don’t need your full RMD for living expenses
Also note: QCDs are subject to annual limits and specific eligibility rules. Because limits and rules can change over time, it’s smart to confirm the current-year guidance before acting. (Source: IRS Publication 590-B, rev. 2024.)
A Simple Planning Habit That Can Save Real Money
Here’s the habit I encourage:
Before you give—especially from retirement accounts—pause and coordinate the “how.”
If you’re planning to support your house of worship, alma mater, or favorite nonprofit this year, I’m happy to help you:
- Confirm whether the organization is eligible
- Coordinate with your custodian on the correct processing steps
- Align gifts with RMD planning and your broader tax picture
- Avoid last-minute surprises that can create avoidable costs
Your generosity deserves to be celebrated—and your plan deserves to be protected.
To your wealth and legacy,
Todd
Disclaimer: This example is for illustrative purposes only and does not represent all outcomes. Tax rules are complex and can change. Consult your financial advisor and a qualified tax professional to review your specific situation before initiating a distribution from a retirement account.