Subscribe
Share
Share
Embed
Freedom for Retirement™ is the podcast designed to help you move beyond the fear of the complexity of finances so you can be financially free to achieve personal significance. Tune in with Josh Duncan each week to turn fear into fuel that drives you into Freedom & Significance.
Welcome to the Freedom for Retirement Podcast.
If you're a high-earning professional, business owner, or someone approaching retirement
and wondering whether you are truly on track, you are in the right place.
This podcast is all about helping you make smart, confident financial decisions without
the fear, confusion, or sales pressure that so often comes with money advice.
Each episode is designed to break down complex topics like retirement planning, investing,
taxes, and cash flow in plain English.
So you can understand what really matters and avoid the most common and costly financial
mistakes.
Everything you hear here is educational, fiduciary focused, and grounded in real-world
planning experience working with clients just like you.
I'm your host, Josh Duncan, partner at F5 Financial Planning.
Let's get started.
Every December, financially savvy retirees do something that feels responsible.
They take the required distribution from their IRA.
And they write a check to their favorite charity.
It feels like the right move.
And for years, it was perfectly fine.
But starting this year, that same move quietly costs you more than it used to.
A new tax law changed how much of that charitable check you can deduct and how much that
deduction is worth.
If you're charitably inclined and taking required distributions from an IRA, you need to
know about this before you write another check.
I'm Josh Duncan, partnered F5 Financial Planning, where we take a fiduciary approach to
maximizing our clients' wealth.
Well, today I'm going to walk you through what changed in 2026, why writing a check to
charity got more expensive, and the one strategy that sidesteps the whole problem, the
qualified charitable distribution.
By the end, you'll know what changed, how a qualified charitable distribution works, why
the gap between the two options got wider this year, and how to set one up before the
December deadline arrives.
Let's start with the change itself, because most people giving to charity this year have
no idea it happened.
For as long as most of us can remember, if you itemized your deductions, you could write
off cash gifts to charity dollar for dollar, up to a certain limit tied to your income.
Simple enough.
But a new law changed two things about how that deduction works.
And both changes shrink the benefit.
First, there's now a floor.
If you itemize, your charitable gifts only count once they exceed one half.
Of 1% of your adjusted gross income.
Picture a retiree with an adjusted gross income of $160,000.
Half of 1% of that is $800.
So if that retiree writes a check for $35,000 to a favorite charity, only $34,200 of it
counts towards the deduction.
The first $800 is simply disappears as if they were never given at all.
Second, even the portion that does count is worth less than it used to be.
The value of every itemized deduction, charitable or otherwise, is now capped at 35 cents
on the dollar, down from 37 cents.
That's a small sounding change, but a large gift, it can really add up.
There is a small consolation for people who don't itemize at all.
Starting this year, non-itemizers can deduct up to $1,000 for a single filer or $2,000 for
a married couple for cash gifts to charity.
It's a nice gesture, but it doesn't come close to offsetting.
What itemizers lost.
This change hits retirees particularly hard and for a specific reason.
Required distributions from an IRA already push your income higher every single year,
often into higher tax brackets than you choose on your own.
Layering a shrinking charitable deduction on top of an income figure that's already
climbing means the retirees who give the most are often the ones absorbing the biggest hit
from this change.
The mistake I want you to avoid here is assuming nothing has changed.
If the way you give to charity hasn't changed since last year, but the tax wall underneath
it has, you may be leaving money on the table without realizing it.
If you give cash to charity and you itemize your deductions, your tax benefit for that
giving just got smaller, whether you noticed it or not.
So if writing a check got less efficient, what's the alternative?
This is where the qualified charitable distribution comes in.
And I want to explain it in plain terms because the name makes it sound more complicated
than it is.
A qualified charitable distribution is a transfer of money directly from your IRA to a
qualified charity.
You have to be at least 70 and a half years old to use one.
The critical word here is direct.
Your IRA custodian sends the money straight to the charity.
It never lands in your checking account and it never shows up as income on your tax return
in the first place.
That last point is the whole key to understanding why this strategy works so well.
A normal charitable deduction reduces your taxable income after the money is already
counted as income.
A qualified charitable distribution never counts as income to begin with.
Think of it like a toll booth on a highway.
A deduction is like getting a partial refund after you've already paid the toll.
A qualified charitable distribution is like taking the exit ramp before you ever reach the
toll booth.
You never pay it, so there's nothing to refund.
Because the money is excluded from your income rather than deducted from it.
It completely bypasses both of the changes we just discussed.
There's no half a percent Florida clear, and there's no 35 cent cap on its value because
it was never counted as taxable income at all.
The mistake many people make the first time they hear about this is taking the required
minimum distribution as cash, depositing it, and then writing a check to the charity from
their own account.
That is not a qualified charitable distribution.
That's simply a required distribution.
Followed by a cash donation and it runs straight into the same floor and cap we just
talked about.
For this to work, the transfer has to go directly from your IRA custodian to the charity.
You never touch the money.
A qualified charitable distribution doesn't get you a better deduction.
It skips the deduction question completely because the money is never treated as income.
Now, let's put these two strategies side by side because this is where 2026 really changes
the math.
Imagine a retiree who is 75 years old and single.
Her required distribution for the year is $150,000.
Combined with other income from social security, a pension, and some interest and
dividends, her total income for the year comes to $225,000.
Of that, she only needs $200,000 to cover her living expenses.
The extra $25,000 she'd like to give to her favorite charity.
If she takes the full required distribution and then writes a check for $25,000, that gift
gets run through the new rules as we described.
A portion is lost to the half a percent floor, and whatever survives that floor is only
worth 35 cents on the dollar.
Her adjusted gross income stays at $225,000, reduced only by a shrunken itemized
deduction.
Now, imagine she does a similar thing, but handles it a little differently.
Instead of taking the full required distribution in cash, she directs
$25,000 of it straight to the charity as a qualified charitable distribution.
Anne takes the remaining $125,000 as normal.
Her adjusted gross income drops immediately to $200,000 because that $25,000 was never
counted as income in the first place.
She can still claim the standard deduction on top of that since she didn't need to itemize
at all.
The result is meaningfully lower taxable income than the first approach.
Purely because of which door the same $25,000 walk through, same gift, same charity, a
noticeably different tax outcome.
And the gap between the two is wider this year than it was last year, because writing the
check got more expensive while the qualified charitable distribution didn't change at all.
One more detail worth knowing: if you're married, this isn't a household limit, it's a per
person limit.
Each spouse can direct their own qualified charitable distribution from their own IRA,
which means a couple can potentially move twice as much out of their taxable income as an
individual could.
There's a ripple effect here too.
Lowering your adjusted gross income doesn't just reduce your income tax bill.
It can also help keep you under the thresholds that trigger higher Medicare premiums, and
it can reduce how much of your Social Security benefit gets taxed in the first place.
A cash donation that gets capped at 35 cents on the dollar.
Does nothing for either of those.
A qualified charitable distribution, because it lowers your adjusted gross income
directly, can help with all three at once.
The mistake to avoid here is treating charitable giving as a habit rather than a decision.
Writing a check because that's simply what you've always done, without checking whether a
qualified charitable distribution would accomplish the same generosity more efficiently,
is leaving real money on the table in 2026.
If you're charitably inclined,
And you're taking required minimum distributions, run the comparison before you give.
The right structure, not just the right amount, determines how much of your generosity the
tax code lets you keep.
Let's get practical, because a strategy only helps if you execute it correctly.
For 2026, you can direct up to $111,000 through a qualified charitable distribution.
If you're married, your spouse can direct up to their own $111,000 from their own RIRA.
or a combined total of $222,000 between you.
There's also a special one-time option allowing up to $55,000 of that amount to fund a
charitable remainder trust or a charitable gift annuity if that kind of income-producing
gift fits your situation.
A few rules matter here.
The money has to come from an IRA, whether that's a traditional IRA, an inherited IRA, or
in some cases an inactive SEP or simple IRA,
It cannot come from a workplace plan like a 401k.
The recipient has to be a qualified public charity, not a donor-advised fund and not a
private foundation.
And the transfer has to be completed by December 31st of the year you want it to count.
One more practical note: even though a qualified charitable distribution isn't a
deduction, you still need a written acknowledgement from the charity confirming the gift,
the same as you would for any other donation.
Keep that letter with your tax records because your custodian's year-in tax form won't
automatically show.
Which part of your distribution went to charity?
That's on you and your tax preparer to document correctly.
Now that deadline trips up more people than you expect.
Many IRA custodians take several weeks to process one of these transfers, especially in
December when everyone else is trying to do the same thing at the last minute.
If you wait until the first week of December to make the request, there's a real chance it
won't be completed in time to count for that tax year.
The mistake to avoid is treating this like a five-minute task you can knock out anytime
before the holidays.
Call your custodian now, confirm the charity's information, and get the paperwork moving
well ahead of the deadline.
The rules are straightforward, but the timing is not forgiving.
Start early and confirm with your custodian how long their process takes.
So who should actually be doing this?
If you're 70 and a half or older, you have an IRA subject to required distributions, and
you're already giving to charity or would like to, this is very likely worth a serious
look.
Here's what surprises people the most.
The strategy isn't just for people who itemize their deductions, because a qualified
charitable distribution is excluded from income rather than deducted from it.
And it helps you whether you itemize or take the standard deduction.
In fact, for the large majority of retirees who now take the standard deduction, this is
often the only way to get any tax benefit at all from the charitable giving.
And this isn't necessarily a one-time decision.
For many retirees, a qualified charitable distribution becomes part of an ongoing annual
routine.
Done every year alongside the required minimum distribution for as long as they're both
charitably inclined and subject to those distributions.
Treating it as a standing part of your tax planning rather than something you remember
only when you happen to think of it is where the real value compounds over time.
The mistake I see most often is retirees assuming this strategy doesn't apply to them
because they stopped itemizing years ago.
That assumption's backwards.
If anything, taking the standard deduction makes the qualified charitable distribution
more valuable to you.
Not less, because it's the only path left that gives your generosity any tax advantage
whatsoever.
Don't rule yourself out because you don't itemize.
If you're charitably inclined and taking required distributions, this deserves a
conversation with your advisor and your custodian, not an assumption that it's someone
else's strategy.
So let's bring this together.
Starting in 2026, writing a check to charity got more expensive thanks to a new floor on
itemized charitable deductions and a lower cap on what those deductions are worth.
Qualified charitable distribution sidesteps both those changes completely because the
money never counts as your income in the first place.
The gap between the two approaches is wider this year than it's ever been, and the
mechanics, while simple, come with a deadline that doesn't bend for procrastination.
If you're 70 and a half or older, giving to charity and taking required minimum
distributions from an IRA, don't let this be the year.
The tax code quietly takes more of your generosity than it needs to.
Talk with your financial planner.
And your tax professional about whether a qualified charitable distribution belongs in
your plan this year.
If you found this episode helpful, please consider subscribing to the podcast and leaving
a review.
It helps more people find the show and continue learning how to make smarter financial
decisions.
I'm Josh Duncan, partnered F5 Financial Planning.
If you would like to learn more about how we help our clients achieve financial freedom
for personal significance, please visit our website at www.f5fp.com.
Thanks for listening, and I'll see you in the next episode.