Whether you want to support a charity, a family member or a friend, these tax-smart strategies can help increase the impact of your charitable giving.
Sharing your good fortune with others can mean many things: helping family and other loved ones with financial gifts, or
donating money to a charitable organization that aligns with your values. Once you've identified the people — or causes — you'd like to support, your next decision is how to do it. Beyond simply giving money directly, there are strategies that can help both you and the recipient get the most out of your gift.
Giving to family and friends
You can help the people who mean the most to you, such as your children, grandchildren or other family members and loved ones, by employing the following strategies:
Strategy 1: Make tax-free gifts
Whether you want to help a loved one out of a financial jam or assist a child with a down payment on a house, you can give a certain amount each year without incurring federal gift taxes thanks to what's known as the federal annual gift tax exclusion. Any gift above this threshold set by the IRS annually could be subject to federal gift tax or count against your lifetime federal gift tax exemption. Find the latest federal gift tax information in our
Annual Tax Guide (PDF).
Tip: You can give unlimited amounts toward a loved one's education or medical care without worrying about the gift tax — but only if you give the money directly to the school or healthcare provider.
Strategy 2: Support a loved one's education with a 529 plan
You can help a child, grandchild or other loved one pay for education by setting aside money in a
529 savings plan. Any earnings on contributions grow federal income tax-free, and as long as the money is used for qualified education expenses, withdrawals are federal and often state and local income tax-free.
"These gifts are covered by the same annual gift tax rules as a cash gift," says Richard J. Polimeni, managing director, Education Savings Programs, Bank of America. And you can even make five years of contributions per beneficiary in one calendar year — without using any of your
lifetime federal gift tax exemption (PDF).
Footnote 1,2,3 Learn more about
a 529 plan.
Tip: If the child doesn't use all the 529 plan funds, you can transfer the account to another beneficiary or roll the remainder into a Roth IRA (restrictions apply).
Giving to charity
You may choose to make a difference in your community or support a global cause. By employing one of these strategic approaches, your generosity can have a greater impact.
Strategy 1: Donate stocks or other assets
If you have stocks or real estate you've owned for more than a year that have risen in value, consider donating them directly to a charity rather than selling them first and paying taxes before making your donation. That way, the organization receives the full value of the appreciated asset and you avoid long-term capital gains taxes you might otherwise owe. As long as you itemize deductions on your income tax return rather than taking the standard deduction, you also may be able to deduct the full fair market value of the appreciated asset as a charitable gift.
Strategy 2. Open a donor-advised fund
With a
donor-advised fund (DAF), you can donate cash, stock or other assets now, then recommend which qualified charitable organizations the money in the fund should go to later, allowing the balance in your DAF to potentially grow tax-free until you recommend the charitable recipients.
Tip: Even though the DAF doesn't have to disburse the funds the year you make the donation, you may be able to deduct the full market value of your gift for that calendar tax year.
Strategy 3. Give directly from your IRA
If you're age 70½ or older, you can donate to a qualified charity directly from a traditional IRA — or in limited circumstances, a Roth IRA, SIMPLE IRA or SEP IRA — without being subject to income tax on that distribution. The maximum amount you can donate — as much as $108,000 in 2025 — is indexed each year for inflation.
If you're age 73 or older, donating money directly from your IRA to a qualified charity can count toward your annual required minimum distribution (RMD) and generally is not included in your taxable income.
— Kevin O'Neil,
managing director, Investment Solutions Group,
Merrill
"If you're age 73 or older and required to take required minimum distributions (RMDs), donating money directly from your IRA to a qualified charity can count toward your annual RMD and is generally not included in your taxable income," says Kevin O'Neil, managing director, Investment Solutions Group, Merrill. If 73 or over, qualified charitable distributions (QCDs) can count toward the IRA owner's RMDs, as long as certain conditions are met. Note that if age 70½ or over, you may make a QCD of up to $100,000 annually, which is indexed for inflation. The maximum QCD in 2025 is $108,000.
Tip: If you're age 70½ or over, you can take a one-time tax-free distribution from an IRA to fund charitable gift annuities, charitable remainder unitrusts and charitable remainder annuity trusts, subject to certain limitations. The maximum distribution is $54,000 in 2025.
When you give to a loved one or a charitable organization, it's important to carefully consider the recipient and the amount you choose to give. Consult with a tax advisor as you consider your options to maximize the benefit to the beneficiary and yourself.
Consider how you might enhance the satisfaction of your generosity by giving in a way that delivers the greatest benefit to everybody.
Before you invest in a Section 529 plan, request the plan's official statement and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing. You also should consider whether your home state or your designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection against creditors that are available only for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency.
Footnote
1 Contributions during 2025 between $19,000 and $95,000 ($38,000 and $190,000 for married couples electing to split gifts) made in one year can be prorated over a five-year period without subjecting you to federal gift tax or reducing your federal unified estate and gift tax credit. If you contribute less than the $95,000 ($190,000 for married couples electing to split gifts) maximum, additional contributions can be made without you being subject to federal gift tax, up to a prorated level of $19,000 ($38,000 for married couples electing to split gifts) per year. Federal gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. For contributions between $19,000 and $95,000 ($38,000 and $190,000 for married couples electing to split gifts) made in one year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in their estate for federal estate tax purposes. Please consult your tax and/or legal advisor for guidance.
Footnote 2 To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a Section 529 account, such withdrawal must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. The earnings portion of a withdrawal that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes. The additional tax is waived under certain circumstances. The beneficiary must be attending an eligible educational institution at least half time for room and board expenses to be considered a qualified higher education expense, subject to limitations. Institutions must be eligible to participate in federal student financial aid programs. Some foreign institutions are eligible. You also can take a federal income tax-free distribution from a 529 account of up to $10,000 per calendar year per beneficiary from all 529 accounts to help pay for tuition at an eligible elementary or secondary public, private or religious school. Qualified higher education expenses now include expenses for fees, books, supplies and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act and amounts paid as principal or interest on any qualified education loans of the designated beneficiary and each sibling of the designated beneficiary, up to a lifetime maximum of $10,000 per individual. Distributions with respect to the loans of a sibling of the designated beneficiary will count toward the lifetime limit of the sibling, not the designated beneficiary. Such repayments may impact student loan interest deductibility. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an eligible elementary or secondary public, private or religious school, apprenticeship expenses and payment of qualified education loans.
Footnote 3 Section 529 plans are established by various states and are offered to residents of all states. Depending on the laws of the customer's home state, favorable tax treatment for investing in a Section 529 plan may be limited to investments made in a Section 529 plan offered by the customer's home state. Neither Merrill Lynch, Pierce, Fenner & Smith Incorporated nor any of its subsidiaries are tax or legal advisors. We suggest you consult your personal tax or legal advisor before making tax- or legal-related investment decisions.
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