Executive summary: In this Sept 2026 update we revisit Mary Thompson’s retirement tax plan. By directing $28,000 of her 2026 required minimum distribution (RMD) to charities as qualified charitable distributions (QCDs), funding a donor‑advised fund (DAF) with appreciated stock in 2023 and completing modest Roth conversions earlier in the decade, Mary reduced her 2026 taxable income, lowered the taxable portion of Social Security by roughly $3,200, avoided an estimated $1,100 per‑year IRMAA surcharge and preserved a predictable legacy vehicle for her children.

Background

Mary (name changed) retired after a 30‑year public education career. She entered retirement holding a typical mix of accounts and income sources that create tax timing issues for many retirees:

  • Traditional IRA (rollover from multiple 401(k) plans): $950,000 (value as of year‑end 2025)
  • Taxable brokerage (mostly low‑basis appreciated stock): $310,000 (2025)
  • Small state pension: $12,400/year
  • Social Security: $22,800/year (began at age 66)
  • Age: 74 in 2026 — subject to SECURE 2.0 RMD rules (many cohorts face RMDs starting age 73)

Her objectives were clear: cover living expenses, maintain charitable giving, avoid raising Medicare premiums via IRMAA, minimize taxation of Social Security benefits and leave a predictable legacy to two adult children.

The challenge

Mary’s large traditional IRA produced RMDs that, if taken as taxable cash, would concentrate taxable income in a way that could:

  • Increase the taxable portion of her Social Security benefits;
  • Trigger an Income‑Related Monthly Adjustment Amount (IRMAA) surcharge on Medicare Part B/D premiums (IRMAA uses a two‑year lookback to SSA income); and
  • Accelerate drawdown of assets she planned to leave as an inheritance.

The problem was not the dollar amount so much as the timing and composition of taxable income in a given tax year.

Updated 2026 context and trends

  • Rules still matter: As of September 2026, QCD mechanics remain unchanged in core respects: distributions must be made payable directly to a qualifying public charity to exclude them from taxable income, and QCDs cannot be used to fund donor‑advised funds, supporting organizations or private foundations. The commonly used $100,000 per‑taxpayer QCD cap (historically set by the IRS) remains the standard planning limit; confirm the current amount with your tax advisor each year.
  • DAF popularity and policy attention: Donor‑advised funds continued to grow through 2024–2026, and planners report more clients using DAF bunching to simplify itemization and to time large gifts. That growth has prompted increased policy discussion — another reason to document intent and follow reporting best practices.
  • IRMAA sensitivity increased: Inflation‑adjusted thresholds and market gains have raised the likelihood that otherwise comfortable retirees will cross IRMAA and Social Security taxation thresholds if RMDs are taken as cash. Because IRMAA calculations use a two‑year lookback, planning must be proactive and modeled several years ahead.

Strategy implemented

Mary and her advisor executed a four‑part plan focused on income smoothing, charitable efficiency and modest pre‑RMD tax action:

  1. Annual QCDs to satisfy part of RMDs. In 2026 Mary directed $28,000 of her IRA distribution to qualifying public charities as QCDs. Those dollars satisfied RMD requirements while being excluded from her taxable income for the year.
  2. DAF funded from taxable, appreciated stock for bunching. In late 2023 Mary transferred $45,000 of low‑basis appreciated stock to a DAF. The gift avoided capital gains and created a charitable balance she can grant from over multiple years to match her philanthropic timing.
  3. Tax‑aware asset placement. Tax‑inefficient holdings and fixed‑income positions stayed in taxable accounts where they generated favorable long‑term tax treatment via lower effective rates on qualified dividends and long‑term gains; growth‑oriented equities were left in tax‑deferred accounts where deferral offered the most value to her overall plan.
  4. Modest Roth conversions earlier in the decade. Between 2020 and 2022 Mary completed opportunistic Roth conversions totaling $65,000 — executed in lower‑income years and during market drawdowns — to shrink her IRA base subject to future RMDs without creating a one‑time, large tax bill.

Implementation — practical steps and timeline

  • Custodian instructions and timing. Mary instructed her IRA custodian to make trustee‑to‑charity payments each year. For 2026 she scheduled QCDs in November to ensure the custodian processed payments in the correct tax year. Don’t skip this: a QCD that arrives to you first and then goes to a charity is at risk of disqualification.
  • DAF transfer specifics. The DAF received in‑kind stock transfers from Mary’s taxable brokerage in December 2023. The custodian and the DAF sponsor communicated transfer details and valuation dates to avoid confusion on the donor’s 2023 return.
  • Documentation checklist (don’t skip these):
    • Custodian confirmation showing distribution date and payee;
    • Charity acknowledgement stating the amount and that no goods or services were provided;
    • DAF transfer confirmation showing date, number of shares and fair market value at transfer;
    • Annual model printouts comparing provisional income, IRMAA thresholds and taxable Social Security under alternate scenarios.
  • Modeling cadence. The advisor ran three scenarios each year: (A) cash RMDs plus itemized giving, (B) QCDs to satisfy RMDs plus DAF bunching, and (C) limited Roth conversions timed to low‑income years. Because IRMAA uses a two‑year lookback, the models projected outcomes for the current year and two years forward to capture Medicare premium sensitivity.

Results through September 2026

The plan produced measurable outcomes aligned with Mary’s goals:

  • Lower reported AGI in 2026: By directing $28,000 of her 2026 RMD to charities as QCDs, Mary reduced her 2026 reported adjusted gross income (AGI) by $28,000 versus taking the full RMD as cash.
  • Reduced Social Security taxability: That lower AGI lowered the provisional income calculation and reduced the taxable portion of her Social Security benefits by an estimated $3,200 in 2026 compared with the cash‑RMD scenario.
  • IRMAA avoidance: The modeled $28,000 QCD shift was sufficient to keep Mary under the IRMAA threshold tied to 2026 Medicare premium adjustments; avoiding the IRMAA surcharge saved her approximately $1,100 in annual premiums (projection confirmed with year‑over‑year sensitivity testing by her advisor).
  • DAF flexibility: The $45,000 DAF funded in 2023 produced tax‑efficiency at funding and now supports grant recommendations in years Mary prefers to increase charitable impact without inflating taxable income. Through Sept 2026 Mary recommended $12,000 in grants from the DAF, with a remaining balance available for later gifts.
  • Roth conversions impact: The earlier $65,000 of targeted Roth conversions reduced Mary’s IRA base and thus future RMD schedules, tempering the long‑term growth of required withdrawals.

Why this mix worked

  • Dual benefit of QCDs. QCDs simultaneously satisfy RMD obligations and exclude the distributed dollars from taxable income — particularly valuable for retirees whose giving is unchanged but whose RMDs would otherwise spike AGI.
  • DAF for bunching and timing. Funding a DAF from appreciated taxable assets allowed Mary to harvest the charitable deduction in the funding year (subject to AGI limits), avoid capital gains tax on the gifted shares and smooth grantmaking across years without year‑to‑year tax friction.
  • Roth conversions as a scalpel, not a chainsaw. Smaller, opportunistic conversions in lower‑income years (or after market drops) reduce future RMD exposure without risking large current‑year tax consequences.
  • Coordination is everything. The plan’s success hinged on custodian cooperation, accurate timing, consistent documentation and annual scenario modeling that included Social Security provisional income and IRMAA thresholds.

Lessons learned — practical guidance you can use

  • Confirm the QCD path before you act. Verify with your IRA custodian that distributions can be made payable directly to a charity and request written proof. If the custodian can produce electronic transfer confirmations, keep those in your tax file.
  • Use the DAF for timing, not to circumvent QCD rules. Remember: QCDs cannot flow into DAFs. If you want both excluded RMDs and DAF flexibility, do both: QCDs from the IRA to charities; DAF funding from taxable accounts.
  • Model the two‑year IRMAA lookback. Because Medicare uses income from two years prior to set IRMAA, a high‑income year (for example, due to a large conversion) can increase premiums later. Run multi‑year scenarios before large conversions.
  • Don’t convert everything at once. Large one‑time Roth conversions can create tax bracket creep and IRMAA exposure. Consider small conversions in years when ordinary income is low or after market drawdowns.
  • Document everything, then double‑check. Custodian confirmations, charity acknowledgements and DAF transfer receipts — keep them together and share them with your tax preparer. Incomplete paperwork is the most common reason QCDs get reclassified.

Takeaways

  • For donors who need to take RMDs, QCDs remain a straightforward, efficient way to reduce AGI while supporting charities.
  • DAF bunching funded with appreciated taxable assets preserves giving capacity and avoids capital gains, but it must be funded separately from QCDs.
  • Tax‑aware asset placement and modest Roth conversions amplify the effect by lowering taxable exposure both inside and outside IRAs.
  • Because IRMAA uses a two‑year lookback, year‑by‑year modeling that includes Social Security provisional income and Medicare thresholds is essential.
  • Documentation and custodian coordination are not optional — they are the difference between a successful QCD strategy and an IRS reclassification.

Checklist: Is this worth exploring for you?

  • Are you age‑eligible for QCDs and currently making charitable gifts?
  • Do your RMDs create concentrated taxable income that could raise provisional income or IRMAA exposure?
  • Do you hold appreciated, low‑basis taxable assets that could fund a DAF without forcing immediate capital gains?
  • Have you modeled how RMDs, QCDs and possible Roth conversions affect provisional income, Social Security taxation and IRMAA across multiple years?

If you answered yes to any of the above, ask your advisor to run at least three comparative scenarios: (a) cash RMDs plus itemized giving; (b) QCDs satisfying RMDs plus DAF bunching; and (c) limited Roth conversions timed to low‑income years. Pay particular attention to the two‑year IRMAA lookback and the interaction with Social Security provisional income — small shifts in AGI can have outsized effects.

Can I make a QCD to my donor‑advised fund?

No. QCDs must be made to qualifying public charities and cannot be directed into donor‑advised funds, supporting organizations or private foundations. If you want both the RMD exclusion and multi‑year grantmaking flexibility, fund the DAF from taxable assets and make QCDs separately to operating charities.

How much can I exclude with a QCD?

Historically, the IRS has applied an annual per‑taxpayer cap to QCDs. As of September 2026 the commonly used planning figure remains $100,000 per taxpayer; confirm the current amount with your tax advisor or the IRS each tax year because indexing or policy changes can occur.

Will a QCD reduce my itemized charitable deduction?

If you exclude an IRA distribution as a QCD, you cannot also claim that same amount as an itemized charitable deduction. Use QCDs strategically when excluding IRA dollars from AGI produces a better outcome — for instance, to lower provisional income or avoid IRMAA thresholds.

Should I convert my entire IRA to a Roth to avoid RMDs?

Rarely. Converting an entire IRA in one year can trigger large taxes, IRMAA implications and bracket creep. Targeted, opportunistic Roth conversions — small amounts in lower‑income years or after market downturns — are usually safer and more tax‑efficient.

How often should I revisit this plan?

At least annually. RMD amounts, Social Security taxation thresholds and IRMAA brackets adjust with inflation; market returns and personal circumstances change year to year. Run sensitivity analyses annually and update transfer timing, QCD amounts and conversion plans accordingly.

Mary’s case shows that modest shifts in how you take distributions — combined with DAF funding and targeted Roth moves — can materially improve after‑tax retirement income and protect benefits. If you want a starter spreadsheet for scenario modeling or a checklist for custodian requests, ask your advisor; if they don’t have one, your custodian or tax preparer should be able to supply a template to begin the conversation.