Now that we are well into the second half of the year, we can reflect on how the landscape of charitable giving continues to evolve, driven by economic, legislative, and technological changes. Charitable giving has become a cornerstone of many of our financial plans here at AFM and can be a valuable tool for tax and estate goals. This blog post explores three significant aspects of modern philanthropy: the rise of donor-advised funds (DAFs), the impact of the SECURE 2.0 Act on charitable gifts, and the growing popularity of qualified charitable distributions (QCDs).
The Rise of Donor-Advised Funds (DAFs)
Donor-advised funds (DAFs) have become one of the fastest-growing vehicles for charitable giving. These funds allow donors to make a charitable contribution (usually the total of a few years of gifting, as part of a strategy called “bundling”), receive an immediate tax deduction, and then recommend grants from the fund over time, with no restrictions or requirements to send out a certain percentage each year. The flexibility and tax advantages of DAFs have made them increasingly popular, and they can be used as legacy or family giving vehicles as they allow for multiple donors of record. This author personally had the opportunity to work on setting up AFM’s very first client DAF in 2017, and we now have launched over 50 DAFs for our clients! DAFs have seen substantial growth over the past several years outside of AFM as well. In 2017, there were approximately 463,622 DAF accounts in the United States. By 2023, this number had surged to over 1 million.1 We believe this growth reflects a broader trend of donors seeking more control and flexibility in their charitable giving.
Highlights of a Donor Advised Fund (DAF)
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- Flexibility: Donors can contribute to their DAFs when it is financially advantageous and decide later which charities to support.
- Tax Benefits: Immediate tax deductions are available upon contribution, even if the funds are distributed to charities at a later date.
- Investment Growth: Funds in a DAF can be invested and grow tax-free, potentially increasing the amount available for charitable grants.
- Simplified Record-Keeping: Donors receive a single tax receipt for their contributions to the DAF, simplifying the administrative aspects of giving.
SECURE 2.0 Act and Charitable Gifts
Many people are familiar with the SECURE 2.0 Act, enacted in December 2022, but not everyone is aware that in the large bill, Congress introduced several changes that impact retirement savings and charitable giving.
Key Changes from the SECURE 2.0 Act
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- Increased QCD Limit: Starting in 2024, the annual limit for QCDs has been increased from $100,000 to $105,000, with future adjustments for inflation.2 This change allows donors to contribute more to their favorite charities directly from their IRAs.
- One-Time Split-Interest Election: The Act introduces a one-time election for a QCD to fund a split-interest entity, such as a Charitable Remainder Unitrust (CRUT), Charitable Remainder Annuity Trust (CRAT), or Charitable Gift Annuity (CGA). Donors can make a QCD of up to $50,000 to these entities, providing a new avenue for charitable giving.3
The Growing Popularity of Qualified Charitable Distributions (QCDs)
Qualified charitable distributions (QCDs) have become an increasingly popular way for retirees to support charitable causes. QCDs allow individuals aged 70½ or older to make direct transfers from their IRAs to qualified charities, which can be counted toward satisfying their required minimum distributions (RMDs) for the year.
Benefits of QCDs
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- Tax Efficiency: QCDs offer a tax-efficient way for retirees to support their favorite charities. The distribution is excluded from taxable income, which can help donors stay in a lower tax bracket and reduce the impact on taxes for Social Security benefits4.
- Satisfying RMDs: For individuals aged 73 or older, QCDs can be used to satisfy RMDs, providing a dual benefit of meeting IRS requirements while supporting charitable causes.4
- Simplified Giving: QCDs simplify the giving process for retirees, allowing them to make significant contributions without the need for itemizing deductions on their tax returns.
Next Year Outlook & Beyond
As we move forward, the trends in charitable giving are likely to continue evolving, especially as we approach the “sunset” of the Tax Cuts and Jobs Act in 2026. Nonprofits and donors alike must stay informed about these developments to maximize their impact and adapt to the changing environment. One of the most rewarding parts of effective financial planning is being able to make a difference, so we encourage our clients and friends to discuss even small ways they can benefit from giving. By understanding and leveraging new and old strategies, donors can make more strategic and impactful contributions, resulting in a true “win-win” scenario!
1: Johnson Center for Philanthropy
4: Yahoo Finance : Forbes : Social Impact Architects