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Older Americans may have another way to make tax-free charitable contributions from their retirement savings under a new bipartisan, bicameral bill in Congress.
The bill, called the Charitable Parity Act, was introduced in the House and Senate on Wednesday and would allow people to make so-called qualified charitable distributions (QCDs) from 401(k)s and similar workplace retirement plans.
Under current law, QCDs (available only to people age 70 1/2 or older) must be sent directly from an individual’s retirement account to a qualified nonprofit organization. This means that if you want to use funds from your 401(k) to do a QCD, you must first roll the amount over to an IRA.
“America’s retirement savers should not have to jump through unnecessary hurdles to support charities just because their savings are held in a 401(k), 403(b), or other employer-sponsored retirement plan rather than an IRA,” Brian Graf, CEO of the American Association of Retired Persons, said in a statement at the time of the bill’s introduction. The group represents retirement plan professionals and works to advocate for policies.
It is unclear how likely the bill will be passed. The House bill was referred to the Ways and Means Committee. The Senate bill was sent to the Finance Committee.
QCD comes with tax benefits
QCD was created in 2006 as part of the Pension Protection Act, allowing individuals age 70 1/2 and older to make charitable contributions from their IRAs without first withdrawing and then contributing the money. Having to withdraw funds first can push up a donor’s adjusted gross income, creating a ripple effect.
For example, Medicare premiums may increase due to the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA is added to premiums for Part B (outpatient medical care) and Part D (prescription drug) insurance for high-income individuals.
QCD, on the other hand, is excluded from donor income.
These distributions also count toward meeting required minimum distributions, which is the amount you must withdraw from certain retirement accounts starting at age 73.
The annual QCD limit for 2026 is $111,000 per individual. Married couples filing a joint return can transfer $111,000 from their respective IRAs in the same year.
“I think the proposed legislation makes sense from both a policy and a practical standpoint,” said tax attorney Richard Fox, founder of the Richard L. Fox Law Offices in Gladwyne, Pennsylvania. He specializes in philanthropic planning.
“This proposal is less about creating a new large-scale charitable tax benefit and more about modernizing the rules to reflect today’s retirement planning realities,” Fox said. “This bill essentially eliminates what many see as an unnecessary rollover step and allows retirees to transfer charitable funds directly, regardless of the type of retirement account in which their assets are held.”
I think the proposed legislation makes sense from a policy and practical perspective.
richard fox
Founder of the Law Offices of Richard L. Fox
The new companion bill joins a bipartisan, bicameral effort to change the rules regarding QCD. This package of bills would allow IRA owners to direct QCDs to donor-advised funds (DAFs), which current law does not allow.
A DAF is a charitable giving account managed by a public nonprofit organization. Donors receive an upfront tax deduction for their contributions to the fund and can encourage their contributions to eligible charities over time.
401(k) offers more and more features
On the other hand, allowing QCDs from 401(k)s may fit with the evolving role of 401(k)s in retirement planning.
Larger plans are increasingly adding features to their plans that encourage retirees to keep their funds in the plan rather than moving them into an IRA or similar location. This includes increasing withdrawal flexibility for retirees and offering annuity options in the lineup.
“Large employer plans now often offer institutional pricing, sophisticated investment options, and retirement plans that rival individual IRAs,” Fox said. “Additionally, modern plans generally allow more flexible delivery options than many plans allowed in the past.”
Most 401(k) plans allow you to leave your assets there, even during retirement, but the 2% requires you to move the funds by age 65 or 70, according to Vanguard. This percentage has remained very low for many years and was 4% in 2014.
