Bill would expand charitable giving options for older IRA owners

Some lawmakers want to expand retirees’ options for making charitable donations from their individual retirement accounts.

Under current tax law, anyone who is at least 70½ years old can make what’s known as a qualified charitable distribution, or QCD, which is a direct transfer from an IRA to an eligible nonprofit organization.

a new bipartisan Senate bill it will also allow IRA owners to direct QCDs to donor-advised funds. A DAF is a charitable giving account managed by a publicly owned nonprofit organization. Donors receive an upfront tax deduction for their contribution to the fund and can recommend donations to eligible charities over time.

The Senate introduced the measure March 3 to accompany an existing regulation house bill This regulation, introduced last year, would mean a change to the current general requirement that QCDs go directly to charities. The Senate bill has been referred to the Finance Committee, and the House measure remains in the Ways and Means Committee.

Michael Kenyon, president and CEO of the National Association of Charitable Gift Planners, one of more than a dozen organizations, said the bill “honors how donors want to give, providing flexibility and efficiency that can advance charitable gift planning and enable greater generosity.” published statements of support When was the bill announced?

A QCD is a direct transfer of funds from your IRA to a qualified charity that can meet your needs. required minimum distributions – these are amounts that must be withdrawn annually from certain retirement accounts once you reach age 73.

To make this type of distribution, you must be at least 70½ years old, and for 2026, annual limit $111,000 per individual. A married couple filing a joint return can transfer $111,000 from each of their IRAs in the same year.

The benefit to donors is that the donated amount is excluded from taxable income, in addition to the distribution that helps cover RMDs.

However, an important aspect of QCDs under current law is that the money must go directly to charities, which means DAFs are excluded. Private foundations are generally excluded for the same reason, although they must distribute 5% of their net investment assets annually.

“The purpose of a charitable IRA rollover is [has been] “To funnel the money into the philanthropic community,” said tax attorney Richard Fox, founder of the Richard L. Fox Law Firm in Gladwyne, Pennsylvania.

“A donor-advised fund is not subject to a required minimum distribution. The money can sit there for years,” said Fox, who specializes in philanthropic planning.

Therefore, critics say, the result is that wealth is hoarded in these funds. Previous bills that never gained traction tried to address those concerns by proposing limits on how long assets could stay in the DAF if the donor received an upfront tax deduction, Fox said.

“The current proposal, by contrast, would expand QCD eligibility to DAFs without incorporating similar distribution requirements,” Fox said.

Total assets in DAFs reached $326.45 billion in 2024, up 27.5% from 2023 to 2025. DAF annual report From the Donor Advised Funding Research Collaborative. The average account size was $91,611. According to the report, contributions to these funds amounted to 89.64 billion dollars in 2024, while the total donations made from the funds reached 64.89 billion dollars.

For donors, there are tax advantages to using QCDs to support charities. Fox said the distribution “is almost always a superior tax move compared to a cash donation, regardless of whether the taxpayer itemizes or takes the standard deduction.”

For receivables Standard deduction — $16,100 for single filers and $32,200 for joint filers in 2026 — It’s important to remember that because the QCD is excluded from your income, it’s essentially a tax deduction that you don’t necessarily get if you make a cash charitable contribution with after-tax income, Fox said. In other words, meanwhile You can get as low as $1,000 ($2,000 if married filing jointly) If you take the standard deduction starting in 2026, any contributions above that will not provide a tax benefit.

For taxpayers, there are limits on how much of your income can be included in your deductions; these include charitable donations, state and local income taxes (SALT), mortgage interest, and medical expenses above a certain amount, among others.

“Elaborate deductions are limited to a 35% tax benefit for high earners,” Fox said. “A QCD provides an effective benefit at the full marginal rate of 37%.”

Additionally, as of this year, itemizers will be able to deduct charitable cash donations that exceed only 0.5% of their adjusted gross income.

“QCD bypasses this deduction, making the first dollar tax-free,” Fox said.

Using distribution to cover your RMDs is especially smart, he said: “It’s better than being taxed on the RMD and [then] Contributing to charities where there are limits on deductibility.”

Additionally, by taking the RMD first and ensuring it is included in your adjusted gross income, you won’t be pushed into a potentially higher tax bracket; This can create ripple effects. For example, it may cause Medicare premiums to increase. monthly adjustment amounts based on incomeor IRMAAs, These are added to premiums for Part B (outpatient care) and Part D (prescription drug) coverage for higher income earners.