Charitable Giving in Retirement: How Minnesota Retirees Can Reduce Taxes And Give More

Key Takeaways:

• Minnesota retirees can use QCDs to give to charity while lowering taxable income.
• Donating appreciated assets helps avoid capital gains taxes.
• DAFs, CRTs, and bunching strategies boost tax savings and flexibility.

For many Minnesota retirees, charitable giving is more than just a financial decision; it’s a way to live out their values, support the causes they care about, and create a meaningful legacy. At the same time, retirement brings new questions about how to give wisely. Retirees want to balance their generosity with thoughtful tax planning, making sure their gifts go as far as possible without creating unnecessary tax burdens.

That’s where planning becomes important. Minnesota’s state tax rules, combined with federal tax considerations, can have a big impact on how much of your wealth ultimately goes to charity versus taxes. The good news? With the right strategies, it’s possible to give more while also reducing your tax liability.

In this post, we’ll explore practical ways to align your charitable goals with smart financial planning. We’ll cover proven tax-saving opportunities, highlight strategies designed for retirees, and answer common questions we hear from Minnesota families about charitable giving in retirement.

How Charitable Giving Can Reduce Taxes in Retirement

Charitable giving in retirement isn’t just personally rewarding; it can also provide meaningful tax relief. Here are a few ways giving can reduce your taxes:

Impact on Both Federal and Minnesota Taxes

• For federal taxes, your charitable contributions may allow you to itemize your deductions (i.e., take more than the standard deduction).  Whether or not you can do this depends on your other deductions, such as medical expenses, property and state taxes, and mortgage interest.  If your charitable contributions are not allowing you to itemize, read on to learn about alternative strategies for giving with a tax benefit.  
• For Minnesota state taxes, individuals who can itemize deductions on their federal tax return will also be able to itemize on their Minnesota return. For those who are unable to itemize, Minnesota’s charitable subtraction may allow you to subtract up to $500 from your return.  

Tax Benefits for Charitable Giving in Retirement- These will be covered in detail in subsequent sections  

• Qualified Charitable Distributions (QCDs): Give directly from an IRA to satisfy your Required Minimum Distribution (RMD) without adding to taxable income.
• Using Donor Advised Funds (DAFs): This strategy allows you to bunch charitable donations in one tax year so that you can itemize your deductions while giving on your preferred timeline out of the fund.  
• Estate Planning Advantages: Gifts can reduce the size of your taxable estate, potentially easing Minnesota estate tax exposure.

Why Reducing Income through Giving for Retirees is so Impactful 

Retirees often face higher taxable income due to the combination of Social Security, pensions, and investment withdrawals, which can add up.  Charitable giving can help lower this income, potentially reducing the portion of Social Security subject to tax, exposure to higher Medicare premiums, and overall state and federal tax liability. 

What Are Qualified Charitable Distributions (QCDs)?

QCDs offer the ability for those age 70 ½ and older to make tax-free transfers of up to $100k from their IRA to charity. Typically, the transaction is set up with your IRA custodian and allows you to have a check cut from the account with no tax withholding that will be mailed directly to the charity of your choice.  QCDs can be a great way to meet your charitable giving goals while also reducing the taxable income from IRA distributions.   

Benefits of QCDs: 

• Help to satisfy your Required Minimum Distributions (RMDs) while reducing your taxable income.
• Allow you to reduce the value of your IRA without paying taxes on the distribution. 
• Allow you to enjoy a tax benefit from charitable giving even if you’re not itemizing your deductions. 
• Can lower your federal and Minnesota state tax liability. 

Limitations & Requirements of QCDs: 

• Be aware that you are only eligible to start QCDs after the date on which you turn 70 ½, rather than anytime in the calendar year, including this date.  
• You are limited by up to $108k total donations to charities per individual with an IRA in 2025.
• You will want to be sure that your IRA distributions vs. QCDs are properly reported on your tax return. Line 4 on your 1040 form has two boxes – one for total distributions and one for the taxable amount. QCDs are included in line 4a but not line 4b.    
• Be sure to get written acknowledgement of your QCD contribution from the charitable institution to provide support when filing your taxes. 

Donating Appreciated Assets Instead of Cash

When it comes to charitable giving in retirement outside of IRAs, writing a check isn’t always the most tax-efficient option. In many cases, donating appreciated assets (such as stocks, mutual funds, or even real estate) can create bigger benefits for both you and the charity.

How It Works

If you sell an appreciated asset, you will normally owe capital gains tax on the growth. By donating the asset directly, you avoid realizing those gains. The charity receives the full fair market value, and you may still qualify for a charitable deduction.

Why It’s More Tax-Efficient Than Cash

Cash gifts don’t eliminate potential capital gains exposure. Donating appreciated assets allows you to give the same value while keeping more money out of the IRS’s reach. This can be especially useful for retirees holding long-term investments with significant unrealized gains.

Minnesota-Specific Considerations

At the federal level, long-term capital gains receive favorable tax treatment.  In Minnesota, however, realized capital gains are taxed as ordinary income, with no special lower rate. This makes donating appreciated assets directly even more valuable for Minnesota retirees, since avoiding a taxable sale can reduce both federal and state tax liability.

Practical Steps for Retirees

• Work with your custodian to transfer shares of stock or mutual funds directly to the charity of your choice. They will typically have a gifting form for you to complete.  
• Be sure that your charity of choice is set up to receive appreciated asset donations. Some charities are set up to accept these donations, but not all will.  
• Consider donor-advised funds (covered in the next section), which make it simple to contribute appreciated assets and then direct grants to charities over time.

Using Donor-Advised Funds (DAFs) for Tax Flexibility

For retirees who want to give generously while keeping their tax strategy flexible, a donor-advised fund (DAF) can be an excellent tool.

What a DAF Is and How It Works

A DAF is a charitable investment account set up through a sponsoring organization (such as a community foundation or a financial institution). You contribute assets such as cash, stocks, mutual funds, or other appreciated property into the fund. You receive an immediate tax deduction for the contribution, while the assets inside the DAF can be invested and grow tax-free. Over time, you recommend grants from the DAF to your chosen charities. This allows you to continue to give according to your desired timeline.  

Tax Advantages for Retirees

• Front-load deductions: You can contribute more in a high-income year (such as before retirement, after selling a business, or during large RMD years) and claim the full deduction right away.
• Tax-free growth: Assets in the DAF can be invested, allowing your charitable dollars to potentially grow before you distribute them.
• Flexibility in giving: Even though you get the deduction in the year of contribution, you can spread out grants to charities over many years.

DAFs provide an immediate deduction, ongoing tax-free growth, and grant-making flexibility.  However, they involve an extra step since you’re giving through the fund. In contrast, direct donations deliver funds immediately to the charity, are often simpler for smaller or recurring gifts, but do not have the same flexibility in timing deductions.  

With Minnesota’s 2023 changes to the taxation of Social Security income, reducing your taxable income using a DAF can make a big impact on reducing the taxation of your benefits. For Minnesota retirees who want both impact and control, DAFs can serve as a bridge between generosity and smart tax planning.

Charitable Remainder Trusts and Estate Planning Benefits

For retirees who want to combine lifetime income with charitable giving, a Charitable Remainder Trust (CRT) can be a powerful tool.

What Is a CRT and How Does It Work

A CRT is an irrevocable trust that allows you to contribute assets (such as cash, stocks, or real estate) into the trust. The trust then provides an income stream to you (or other beneficiaries) for a set term or for life. When the trust ends, the remaining assets are distributed to your chosen charity.

Tax Treatment of CRTs

• Partial Charitable Deduction: When you fund the CRT, you may qualify for an immediate charitable income tax deduction based on the projected remainder value that will go to charity.  This is calculated as the value of the donated property minus the present value of the annuity.  
• Income Stream: You or your beneficiaries receive regular income from the trust (either fixed or variable), depending on how it’s structured. This income will be taxed as distributions of the trust’s income and gains in a particular order.  
• Capital Gains Deferral: If you contribute appreciated assets, the CRT can sell them without immediately triggering capital gains tax, spreading taxation over time.
• Estate Tax Benefits: Assets placed in a CRT are removed from your estate, potentially lowering future estate tax exposure.

Minnesota Estate Tax Considerations

Minnesota’s estate tax exemption is lower than the federal exemption, $3 ML vs. $13.99 ML, which means more families may be affected at the state level. By moving assets into a CRT, retirees can reduce the size of their taxable estate, helping to minimize or even eliminate Minnesota estate taxes. This makes charitable planning especially valuable for Minnesota couples and individuals who want to leave a legacy while also protecting heirs from unnecessary tax burdens.

Comparing Charitable Giving Strategies for Retirees

Timing and “Bunching” Strategies for Charitable Giving

The passage of the Tax Cuts and Jobs Act significantly increased the federal standard deduction. This increased standard deduction was maintained with the passage of the One Big Beautiful Bill Act. While this simplified tax filing for many households, it also meant fewer retirees benefit from itemizing charitable deductions each year. As a result, giving strategies have shifted to focus more on timing.

What Is “Bunching”?

Instead of spreading charitable gifts evenly across several years, retirees can “bunch” multiple years’ worth of donations into a single tax year. This allows you to exceed the standard deduction in that year, itemize your charitable contributions, and capture a larger tax benefit. In the alternate years, you can take the standard deduction without losing out.

Practical Applications for Minnesota Retirees

• Pairing with a Donor-Advised Fund (DAF): You can contribute multiple years’ worth of donations to a DAF in one year, take the deduction immediately, and then make annual grants to charities on your own schedule.
• Gifting Appreciated Assets: Bunching a larger contribution of appreciated stock or mutual funds not only maximizes the tax deduction in a single year but also avoids Minnesota’s treatment of capital gains as ordinary income.
• Coordinating with Income Spikes: Retirees often face unusually high-income years (such as Roth conversions, taking large RMDs, or realizing investment gains). Bunching contributions in those years helps offset the higher tax liability.

The Role of Charitable Giving in Minnesota Estate Planning

For many retirees, charitable giving isn’t just about annual donations; it’s also an important part of estate planning. In Minnesota, where estate tax rules differ from federal law, integrating charitable goals into your legacy plan can provide both personal fulfillment and tax advantages.

Minnesota’s Estate Tax Rules

As noted previously, Minnesota’s estate tax exemption is significantly lower than the federal exemption.  The Minnesota lifetime exemption is $3 ML and not portable to a surviving spouse, whereas the federal exemption is $13.99 ML and portable. As of recent years, estates valued above the Minnesota threshold may be subject to state estate tax, even if they’re well below the federal level. This means more Minnesota families find themselves impacted by estate taxes than they might expect.

How Charitable Bequests Help

Assets left to qualified charities are generally excluded from the taxable estate, reducing or even eliminating Minnesota estate tax liability. This allows retirees to direct more of their wealth to meaningful causes instead of taxes.

Coordinating with Your Broader Plan

Charitable goals can be built into wills, trusts, and beneficiary designations to ensure your legacy is carried out exactly as intended. Tools like charitable remainder trusts (CRTs) or donor-advised funds (DAFs) can also be structured to support heirs and charities in tandem.

Impact on Heirs and Legacy

Strategic charitable planning can help protect more wealth for heirs by lowering estate tax exposure. At the same time, it provides a chance to model generosity, passing along both financial resources and family values to the next generation. By weaving charitable giving into your estate plan, you can create a legacy that supports loved ones while strengthening the community causes you care about most.

Charitable Giving While Retired in Minnesota FAQs

Can I deduct charitable contributions if I take the standard deduction?

No. If your charitable contributions, combined with any other deductions, do not allow you to itemize, then you will take the standard deduction. This means your charitable giving has no impact on your taxes. That is why we evaluate all client situations to determine how you can make your charitable giving reduce your taxes by considering strategies like QCDs and DAFs.  

What types of organizations qualify for tax-deductible gifts in Minnesota?

Any qualified organization is eligible, including nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose or that work to prevent cruelty to children and animals.  

Do QCDs count toward both federal and Minnesota taxes?

Yes. QCDs reduce or eliminate your RMD for Minnesota taxes in the same way they do for Federal taxes.  

What records do I need to keep for charitable contributions?

It is important to obtain written communication from the qualified charitable organization containing the name of the organization and the amount and date of the donation.  

Can I combine charitable giving with Roth conversions or other retirement tax strategies?

Yes, and we often recommend this approach for clients who would benefit from Roth conversions.  As mentioned in the bunching section of this post, doing multiple years of charitable giving all in one year to a DAF allows you to convert more dollars to your Roth IRA while keeping your taxable income low.  

Is there a limit on how much I can give each year?

There is no limit on how much you can give each year. However, there is a limit on what can be deducted from your taxes. Your deduction for charitable contributions generally can’t be more than 60% of your AGI, but in some cases, 20%, 30% or 50% limits may apply.  For more information, check out the IRS publication on Charitable Contributions- https://www.irs.gov/publications/p526  

We Help Minnesotans Maximize Their Charitable Impact in Retirement

Tax-efficient charitable giving allows retirees to do more than simply write a check. It’s a way to align generosity with smart financial decision-making. By taking advantage of strategies like QCDs, donor-advised funds, and donating appreciated assets, you can reduce taxes, keep more of your wealth working toward your personal goals, and make a greater impact on the causes you care about.

The key is integration. Charitable giving shouldn’t be separated from your retirement income and estate planning; it should be woven into the bigger picture. When done thoughtfully, giving can lower taxable income in retirement, ease estate tax exposure, and create a lasting legacy for your family and community.

At Clerestory Advisors, we help Minnesota retirees evaluate their options, coordinate with tax professionals, and design charitable giving strategies that maximize both tax savings and impact. If you’re ready to explore how giving can fit seamlessly into your retirement plan, we’d love to help.

Reach out today to schedule an introductory call if you’d like to learn more about how we can support you with tax-smart charitable giving as you approach retirement. 

Sources: 

https://www.irs.gov/newsroom/qualified-charitable-distributions-allow-eligible-ira-owners-up-to-100000-in-tax-free-gifts-to-charity

https://irahelp.com/new-reporting-for-2025-qcds/

https://www.irs.gov/publications/p526

https://www.revenue.state.mn.us/charitable-contributions-subtraction

https://www.irs.gov/charities-non-profits/charitable-remainder-trusts

Liz Alf is the Principal of Clerestory Advisors and fee-only CERTIFIED FINANCIAL PLANNERTM located in Minneapolis, MN.  She is a member of the National Association of Personal Financial Advisors (NAPFA), the Fee Only Network and Wealthtender.  She enjoys serving clients with on-going financial planning and investment management services.