Charitable Giving Strategies for Retirees

Charitable giving is a cornerstone of many financial plans, helping to achieve personal goals and providing potential tax benefits. With the passing of the One Big Beautiful Bill Act (OBBA) the landscape of charitable giving has changed. Here are some strategies you may want to consider to help enhance your charitable contributions post OBBA.

1. Qualified Charitable Distributions (QCDs)

QCDs allow individuals aged 70½ and older to donate up to $108,000 directly from their IRA to a qualified charity without being subject to taxation on the amount distributed.

How it works: The distribution must be made directly from the IRA to the charity. This can satisfy the donor's required minimum distribution (RMD) for the year, thereby reducing taxable income.

Consideration post-OBBA: With the introduction of an itemization floor for charitable gifts and the reduction in itemized deductions for high income earners, QCDs are even more attractive than before.

2. Gifting Appreciated Securities

Gifting appreciated securities, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs) directly to a charity can help a taxpayer avoid capital gains tax while satisfying charitable wishes.

How it works: The donor transfers the security directly to the charity, which then sells the security without incurring capital gains taxes.

Consideration post-OBBA: The introduction of the itemization floor and reduction in itemized deductions for high income earners has made gifting appreciated securities less attractive than before. The elimination of capital gains tax in Missouri has also made it less consequential to realize gains to make gifts.

3. Donor-Advised Funds (DAFs)

A DAF is a charitable-giving account designed for the sole purpose of supporting charitable organizations.

How it works: Donors contribute assets (cash, securities, etc.) to the DAF and receive a tax deduction in the year of the contribution. The assets can be invested and grow tax-freeuntil distributed to charities.

Consideration post-OBBA: DAFs still offer advantages to those looking to create a charitable legacy, but the tax benefits to making contributions are weakened by the higher standard deductions and limitations put on individuals that itemize.

4. Bunching Gifts

Charitable gift bunching can be an effective way to enhance itemized deductions in specific years by lump sum gifting multiple years of planned charitable gifts in a single tax year.

How it works: Instead of donating $10,000 annually, a donor might contribute $30,000 in one year, typically to a DAF, and then skip donations for the next two years. This helps make it possible that the larger contribution exceeds the standard deduction for that year.

Consideration post-OBBA: Starting in 2026, charitable bunching is going to make sense in fewer cases due to the changes to those that itemize and the increased standard deduction. This will need to be monitored on a case-by-case scenario.

5. Neighborhood Assistance Program (NAP) in Missouri

Missouri's NAP offers tax credits to businesses and individuals that contribute to approved community projects. These credits can significantly reduce state tax liability as well as federal tax liability for those who itemize while supporting local charitable initiatives.

How it works: Donors contribute to eligible organizations and receive a state tax credit, often up to 50% to 70% of the donation amount. The difference between the amount donated and the state tax credit received can then be used as an itemized deduction.

Consideration post-OBBA: The NAP credits provide a valuable tax-saving opportunity that is less affected than others by the passing of OBBA. However, like several other strategies, the limitations on individuals itemizing will certain curtail some of the benefit for NAP credits.

6. Cash Donations

Cash donations are probably the most commonly used form of charitable giving for retirees. Individuals give cash, check or credit card donations to the charities they support on a regular or periodic basis.

Consideration post-OBBA: OBBA brought back a popular provision from the CARES Act in 2020 that allows individuals that take the standard deduction to get a deduction for cash gifts. The limit is $1,000 for single filers and $2,000 for married filers and must be cash gifts (no appreciated securities or DAF contributions).

The Impact of Tax Law Changes

With many of the tax law changes going into effect in 2025, and many more scheduled for the start of 2026, it is an important time to re-evaluate your charitable giving strategies. Under the new law, higher standard deductions and limited itemized deductions have made QCDs and cash gifts more attractive than they had been before.