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Required Minimum Distribution (RMD) and Donor Advised Fund (DAF) | Charlotte County

If you want to use RMDs to make a charitable donation there are some limits to keep in mind. The maximum contribution is $100,000 each. The donation also has to be qualified (QCD) – and Donor Advised Funds (DAF) are specifically excluded:

QCDs cannot be made into DAFs. However, since the sponsoring organization of your DAF is a 501(c)(3), you can still donate your QCD to that charity if they have other programs that you fund outside of your DAF. Such purposes include general support for the charity or other programs they may maintain outside of their role as a DAF sponsor.
Qualified Charitable Distributions can also not be made to private foundations, split-interest charitable trusts, or supporting organizations.

The advantage of using the RMDs for QCDs is that the amount is not included in their AGI (Adjusted Gross Income) which is important for determining their overall tax rates and different phaseouts on their tax returns. It can also affect how much of their SS is taxable. Depending on what tax bracket they are currently in, this can have either a minor or a decently significant impact. I would need to run a few scenarios to see exactly what the impact might be.

If you are quite passionate about a DAF, then there are still advantages. The limitation for charitable contributions is currently set at 60% of AGI until Jan 1, 2026, for cash contributions and 30% for securities. Donated securities held long-term are not subject to capital gains tax. Any unused deduction can be carried forward for five years. A DAF essentially frontloads the charitable deduction and is more appropriate for clients who expect to pay higher taxes now and lower taxes in the future.

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