A Smarter Way to Give: Donating Appreciated Stock in Retirement

Written by Ellen Johnson, Thistle Wealth

Why do you give to charity? Because you care about people and causes that matter to you.

That should always be the reason behind your giving. And if your donation doesn't happen in the most tax-efficient way possible? That's okay. The most important thing is that the money got where it needed to go.

That said, there's a way to give the same amount to the same charities while also improving your tax situation and strengthening your investment portfolio. It's worth understanding, especially if you're in or approaching retirement and want every dollar working as hard as you do.

The approach: donating investments instead of cash.

What Does "Donating Investments" Mean?

An "appreciated security" is simply an investment: shares of stock, an ETF, or a mutual fund that has grown in value since you acquired it. Instead of writing a check for $10,000, you donate $10,000 worth of investments that have gained value over time.

The result? The charity receives the same amount. But you avoid paying taxes on those gains, which means more of your wealth stays intact.

This is especially useful if any of the following sound familiar:

• You hold too much of a single stock, like company shares from years of vesting.
• You own an investment you no longer want but haven't sold because of the tax hit.
• Your portfolio has shifted out of balance and a particular holding has grown larger than intended.
• Your portfolio is right where you want it, but the tax profile could be improved.

Each of these is an opportunity to give generously and take better care of your financial plan.

The Math Behind It

Here's a simple example to illustrate why this works.

Imagine you own 100 shares of a stock worth $100 each so $10,000 total. You acquired the stock five years ago at $40 per share. That means $6,000 of your current value is gains that would be taxed if you sold.

If you donate $10,000 in cash, the charity receives $10,000. You may or may not get a tax deduction depending on whether you itemize.

If you donate the 100 shares instead, the charity still receives $10,000. The deduction situation is the same. But you've also avoided paying taxes on that $6,000 in gains. In Oregon, where capital gains are taxed as ordinary income, that matters more than you might expect. Between the federal long-term capital gains rate (15%) and Oregon's state income tax (roughly 8%), you're looking at a combined rate of about 23%, a savings of approximately $1,380 on this example alone. For higher-income households, the federal rate may be 20% plus an additional 3.8% Net Investment Income Tax, which pushes the savings even higher.

Same generosity. Better outcome for your finances.

Four Ways This Can Strengthen Your Portfolio

1. Reducing a concentrated stock position

If company stock has accumulated over the years, your portfolio may be heavily weighted toward one company. Selling creates a tax bill. Donating those shares lets you reduce that concentration, support a cause you care about, and lower your tax burden all at once.

2. Letting go of an investment you no longer want

Maybe you inherited shares from a family member. Or you bought a mutual fund years ago that no longer fits your plan. You've been holding onto it because selling would trigger taxes. Donating it gives you a clean exit without the tax cost.

3. Rebalancing without selling

Over time, strong performance in one area of your portfolio can push it out of alignment with your plan. If your target is 40% in U.S. stocks and you're sitting at 60%, donating some of those shares brings you closer to your target, no sale required.

This assumes you have a clear investment plan with target allocations. Without one, it's hard to know when something is out of balance. At Thistle Wealth, we build this clarity through an Investment Policy Statement that we review and update annually.

4. Improving your portfolio's tax profile

Even if your portfolio is exactly where you want it, donating appreciated shares and replacing them with new purchases at today's higher price resets your cost basis. That means less taxable gain in the future if you ever need to sell.

Here's how it works: you donate shares you originally acquired at $40 per share, then use the cash you would have donated to buy new shares at $100. If those shares later grow to $150, you'll owe taxes on $50 of gain instead of $110. The portfolio looks the same. The future tax bill is smaller.

What to Do With the Cash You Didn't Donate

When you donate investments instead of cash, you still have cash on hand, the money you would have given directly to the charity. That cash can fill the gap left in your portfolio.

You can use it to buy the investments your portfolio actually needs, effectively rebalancing and improving your holdings without making your overall portfolio any smaller.

If you don't have a lump sum available, contributing steadily over time works too. Setting aside a consistent amount each month can fill the gap within a year.

A Few Important Details

There are rules to follow to make sure this strategy works properly:

• Hold period matters. You need to have owned the investment for more than one year before donating it.
• The investment needs to be at a gain. If it's currently worth less than what you paid, selling it outright and taking the tax write-off is the better move.
• This only applies to taxable accounts. Investments inside a 401(k) or IRA aren't eligible for this strategy. That said, this is one of many reasons it's worth building savings outside of retirement accounts.
• Consider using a Donor Advised Fund. Donating stock directly to multiple charities involves paperwork for each one. A Donor Advised Fund (DAF) simplifies this. You donate the stock to the DAF, sell it tax-free inside the fund, and then distribute cash grants to whatever charities you choose.

The Bigger Picture

Charitable giving is, first and foremost, an act of care. It's something we see our clients do thoughtfully and consistently, and it's one of the most meaningful parts of a financial plan.

But generosity works best when it's part of a broader strategy. Knowing which assets to give, when to give them, and how that fits into your overall retirement plan is where thoughtful coordination makes a real difference.

If you'd like to explore whether donating appreciated investments could work within your plan, we'd welcome that conversation. Contact us today!