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’s at least age 70½ can make what’s known as a qualified charitable distribution, or QCD, which is a direct transfer from an IRA to an eligible nonprofit.

A new bipartisan Senate bill would also allow those IRA owners to direct QCDs to donor-advised funds. A DAF is a charitable giving account managed by a public nonprofit. Donors get an up-front tax deduction for their contribution to the fund, and they can recommend donations to qualifying charities over time.

The Senate measure, introduced March 3 as a companion to an existing House bill floated last year, would mean a change to the existing general requirement that QCDs go directly to charities. The Senate bill was referred to the Finance Committee, and the House measure is in the Ways and Means Committee.

The bill “honors how donors want to give, providing flexibility and efficiency that can further their charitable gift planning and yield greater generosity,” said Michael Kenyon, president and CEO of the National Association of Charitable Gift Planners, one of more than a dozen organizations that released statements of support when the bill was unveiled.

A QCD is a direct transfer of funds from your IRA to a qualifying charity that can be counted toward satisfying your required minimum distributions — which are amounts that must be withdrawn from certain retirement accounts annually once you reach age 73.

You must be at least age 70½ to do this type of distribution, and for 2026, the annual limit is $111,000 per individual. A married couple that files a joint return could transfer $111,000 from each of their IRAs in the same year.

The benefit to donors, in addition to the distribution helping to satisfy RMDs, is that the amount donated is excluded from their taxable income.

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

“The point of the charitable IRA rollover [has been] to get the money out into the charitable community,” said tax attorney Richard Fox, founder of the Law Offices of Richard L. Fox in Gladwyne, Pennsylvania.

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

Because of that, critics say the result is wealth hoarding in these funds. Prior legislative proposals, which never gained traction, have sought to address these concerns by proposing limits on how long assets can sit in a DAF if the donor takes an up-front tax break, 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, according to the 2025 DAF annual report from the Donor Advised Fund Research Collaborative. The average account size was $91,611. Contributions to these funds were $89.64 billion in 2024, and grants made from the funds totaled $64.89 billion, according to the report.

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

For those who take the standard deduction — $16,100 for single filers and $32,200 for joint filers in 2026 — it’s important to remember that because a QCD is excluded from your income, it’s basically a tax break that you don’t necessarily get if you were to make a cash charitable contribution with after-tax income, Fox said. In other words, while you can deduct up to $1,000 ($2,000 if married filing jointly) starting in 2026 if you take the standard deduction, any contribution above that would get no tax benefit.

For taxpayers who itemize, there are limits to how much of your income can count toward your deductions, which include charitable donations, state and local income taxes (SALT), mortgage interest and medical expenses above a certain amount, among others.

“Itemized deductions are capped at a 35% tax benefit for high earners,” Fox said. “A QCD effectively provides a benefit at the full marginal rate,” which is 37%.

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

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

Using the distribution to satisfy your RMDs is especially smart, he said: “Better than being taxed on the RMD and [then] contributing to charity, where there are limitations on deductibility.”

You also wouldn’t potentially be pushed into a higher tax bracket by taking the RMD first and having it count toward your adjusted gross income — which can have ripple effects. For instance, it can cause Medicare premiums to rise due to income-related monthly adjustment amounts, or IRMAAs, that get tacked on to premiums for Part B (outpatient care) and Part D (prescription drugs) coverage for higher earners.