Direct Donations From 401(k) Plans Could Become Tax-Free
Bipartisan Lawmakers Introduce “Charity Parity Act”
A bipartisan group of lawmakers in Congress is pushing legislation that would expand tax benefits for retirees making charitable donations from retirement accounts.
If passed, the proposal would allow retirees to make tax-free charitable contributions directly from workplace retirement plans such as 401(k) and 403(b) accounts — not just from IRAs.
Members of the U.S. House and Senate recently introduced the “Charity Parity Act,” which would expand the use of Qualified Charitable Distributions (QCDs) for retirees age 70½ and older.
Currently, QCDs are permitted only through Individual Retirement Accounts (IRAs). As a result, retirees who want to donate funds from a 401(k) must first roll the money into an IRA before making a qualified charitable contribution.
The QCD provision was originally created under the Pension Protection Act of 2006. It allows retirees age 70½ or older to donate directly from their IRA to eligible nonprofit organizations without counting the withdrawal as taxable income.
Financial experts say one of the biggest advantages of QCDs is the potential tax savings. Normally, withdrawing money from a retirement account before donating it can increase taxable income. Under QCD rules, however, the donated amount is excluded from taxable income altogether.
That can help retirees avoid higher Medicare premium surcharges known as IRMAA (Income-Related Monthly Adjustment Amounts) while also lowering overall tax liability.
QCDs can also count toward Required Minimum Distribution (RMD) obligations that retirees must begin taking after age 73.
For 2026, the annual QCD contribution limit is $111,000 per individual. Married couples filing jointly may each contribute up to the same limit from their respective IRA accounts.
