401(k) charitable donations take center stage in Charity Parity Act

Older Americans may have another way to make tax-free charitable donations from their retirement savings under a new bipartisan, bicameral bill in Congress.

in the name Charity Equality Act Introduced in both the House and Senate on Wednesday measurement It would allow qualified charitable distributions, or QCDs, to be made from 401(k)s and similar workplace retirement plans.

Under current law, QCDs, which are available only to individuals age 70½ and older, must be issued directly from the individual retirement account to a qualified nonprofit organization. This means that if you want to use money from your 401(k) to make a QCD, the amount must first be rolled into an IRA.

“American retirement savers should not have to jump through unnecessary hoops to support their charitable causes because their savings are held in a 401(k), 403(b) or other employer-sponsored retirement plan rather than an IRA,” Brian Graff, CEO of the American Retirement Association, said in a statement released when the bills were introduced. The group represents retirement plan professionals and engages in policy advocacy.

It is unclear what the bill’s chances of passing are. The House bill was referred to the Ways and Means Committee; The Senate bill was sent to the Finance Committee.

For example, it may cause Medicare premiums to increase. monthly adjustment amounts based on incomeor IRMAAs are tied to premiums for Part B (outpatient care) and Part D (prescription drug) coverage for higher income earners.

QCDs, on the other hand, are excluded from the donor’s income.

These distributions may also count toward meeting required minimum distributions, which are amounts that must be withdrawn from certain retirement accounts starting at age 73.

for 2026, annual QCD limit is $111,000 per individual. A married couple filing a joint return can transfer $111,000 from each of their IRAs in the same year.

“I think the proposed legislation makes sense from both a policy and practical standpoint,” said tax attorney Richard Fox, founder of the Richard L. Fox Law Firm in Gladwyne, Pennsylvania. He specializes in philanthropic planning.

“The proposal is less about creating a major new charitable tax incentive and more about modernizing the rules to reflect current retirement planning realities,” Fox said. he said. “The bill would essentially eliminate what many see as an unnecessary rollover step and allow retirees to make direct charitable transfers regardless of the type of retirement account holding the assets.”

The new companion bills join another bipartisan, bicameral effort to change the rules on QCDs. This set of proposed legislation would allow IRA owners to direct their QCDs to donor-advised funds, which is not allowed under current law.

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.

Meanwhile, allowing QCDs from 401(k)s could fit with the evolving role of 401(k)s in retirement planning.

Big plans are becoming more common adding features to their plans that could persuade retirees to keep their funds in those plans rather than moving them into IRAs or elsewhere. This includes providing retirees with greater flexibility for withdrawals and offering annuity options on their roster.