Millions of Americans have spent decades building retirement savings inside 401(k) plans. They’ve watched the balance grow, taken advantage of employer matches, and planned carefully around required minimum distributions (RMDs) – the mandatory annual withdrawals the IRS requires once you reach a certain age. But for those who also want to give to charity in retirement, there’s long been a frustrating wrinkle in the tax code – one that forces people with 401(k)s to jump through bureaucratic hoops just to access the same tax break available to IRA holders. A new bill moving through Congress could change that.
The legislation is called the Charity Parity Act, and it’s generating attention in financial planning circles for good reason. It targets a specific rule that has quietly disadvantaged tens of millions of workplace retirement plan participants for years – and if it passes, the tax benefits of charitable giving from a 401(k) could be substantial. Understanding what the bill proposes, and how the existing rules work, is the first step toward knowing whether it could matter for your retirement plan.
Before digging into the legislation itself, it’s worth understanding exactly why this gap exists and what it currently costs people who want to give generously from their retirement savings.
What Is a Qualified Charitable Distribution – And Why Does It Only Apply to IRAs?
The qualified charitable distribution (QCD) is a tax-advantaged strategy designed specifically for IRA-owning individuals age 70½ and older – particularly those who take the standard deduction and might not otherwise have a tax incentive to make charitable contributions.
Here’s how it works in practice. To qualify for a QCD, you must be at least 70½ years old and have funds in an eligible IRA. The distribution must be made directly from your IRA to an eligible 501(c)(3) charitable organization, with a maximum annual limit of $111,000 per individual. The critical point is that the money never passes through your hands – the custodian sends it straight to the charity, which means the IRS never counts it as income at all.
That distinction is enormously valuable from a tax perspective. Because the money goes directly from your IRA to the charity, it is never counted as income. That keeps your adjusted gross income (AGI) lower, which matters more than most people realize. Lower AGI can affect Medicare premiums, Social Security taxation, exposure to the Net Investment Income Tax, and eligibility for certain deductions and credits.
QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met. You get to choose whom to help from a database of qualified charities. If you’re age 73 or older and need to take RMDs, your QCD counts toward your annual IRS requirement. For retirees who don’t need the income from their RMDs, this makes a QCD one of the most efficient strategies available – you satisfy the government’s requirement and support a cause you care about, all without adding to your taxable income.
In 2026, the maximum QCD is $111,000 (increased from $108,000 in 2025), and a spouse can also make up to a $111,000 QCD if the couple files a joint income tax return. That means a married couple could theoretically direct up to $222,000 per year to charity, completely tax-free.
But there’s a catch – and it’s a significant one.
The 401(k) Problem: The Rule That Blocks Millions of Retirees
The IRS does not allow you to make a charitable contribution from a workplace retirement plan, like a 401(k). The QCD rule applies only to IRAs. Charitable distributions from employer-sponsored plans – such as 401(k), 403(b), and 457(b) plans – are not eligible for QCD treatment. As a result, individuals who hold their retirement savings primarily in employer plans must first roll assets into an IRA before making a QCD, adding unnecessary steps, costs, and administrative burdens.
This matters because many Americans – particularly those who spent long careers with stable employers – hold the bulk of their retirement savings in workplace plans, not IRAs. For these individuals, accessing the QCD benefit requires a detour: moving money from the 401(k) into an IRA first, and only then making the charitable transfer.
Under current law, many participants must first roll a 401(k) or 403(b) balance into an IRA to use a QCD, which can trigger account-closing fees, outbound transfer fees, broker transfer fees, or fees charged by the receiving IRA custodian. Additionally, participants with balances across multiple employer plans would need multiple rollovers.
The rollover process itself introduces further complexity. Rollovers typically take two to four weeks to complete. And while the rollover itself may not generate a tax bill if done correctly as a direct transfer, the real costs show up elsewhere – before, during, or after the move. Research from The Pew Charitable Trusts shows that when you move your 401(k) to an IRA, it can become costly. The small differences in fees between both accounts can cause investors to lose thousands in retirement savings.
There’s also a tax withholding risk. If a participant takes a distribution from their 401(k) directly – rather than arranging a trustee-to-charity transfer – mandatory federal withholding rules can create significant complications. If you do an indirect rollover, the plan administrator may withhold 20% from your check to pay taxes on your distribution. To get that money back, you must deposit the complete account balance, including whatever was withheld for taxes, within 60 days of the date you received the distribution.
For a retiree whose only goal is to write a check to the American Heart Association or their local food bank, this is an unreasonable amount of friction. The Charity Parity Act is designed to eliminate it.
The Charity Parity Act: What It Proposes and Who’s Behind It
The Charity Parity Act, introduced simultaneously in the House and Senate, would extend qualified charitable distributions to employer-sponsored retirement plans, including 401(k), 403(b), and 457(b) accounts. Under current law, QCDs are available only from individual retirement accounts.
The House version was introduced by Reps. Mike Kelly (R-Pa.) and Don Beyer (D-Va.), both members of the Ways and Means Committee, where the bill was referred. On the Senate side, Senators Marshall and Warner sit on the Finance Committee, where the Senate version was referred. Senator Cramer was the lead Senate sponsor of the SECURE 2.0 provision on which the Charity Parity Act expands, while Senator Coons is an original cosponsor of the Charitable Act.
The bill has attracted broad bipartisan support, which is notable in the current political environment. It has drawn backing from nonprofit organizations, including the American Heart Association, United Way Worldwide, the Salvation Army, the National Council of Nonprofits, Mental Health America, the Association of Fundraising Professionals, the National Association of Charitable Gift Planners, and the American Cancer Society Cancer Action Network, among others.
The endorsements go beyond symbolic support. Diane Yentel, president and CEO of the National Council of Nonprofits, stated that nonprofits are America’s backbone, delivering critical services effectively, while facing significant financial challenges that have forced many organizations to cut back, reduce staff, or close their doors – and applauded the bill’s sponsors for introducing bipartisan legislation to make it easier for Americans to support them.
Brian Graff, CEO of the American Retirement Association, framed the bill’s purpose plainly. “American retirement savers should not have to jump through unnecessary hoops to support charitable causes simply because their savings are held in a 401(k), 403(b) or other employer-sponsored retirement plan instead of an IRA,” he said in a statement.
Tax attorney Richard Fox, a specialist in philanthropic planning, offered a measured assessment of what the bill actually does. “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. “The bill essentially would eliminate what many view as an unnecessary rollover step and permit retirees to make direct charitable transfers regardless of the type of retirement account holding the assets.”
The Legislative Context: Building on SECURE 2.0
The Charity Parity Act doesn’t emerge from a vacuum. It builds on a series of retirement law changes that have been rolling through Congress over the past several years, most notably the SECURE 2.0 Act of 2022.
The Legacy IRA Act – enacted as part of the SECURE 2.0 Act – first expanded and modernized QCD rules, allowing seniors to make tax-free charitable gifts directly from their IRAs, including a new one-time election for life-income gifts. The SECURE 2.0 Act of 2022 also indexed the QCD limit to inflation and permitted one-time distributions to charities through split-interest entities – arrangements such as charitable gift annuities and charitable remainder trusts.
The Charity Parity Act would extend that same philosophy – reducing barriers between where retirees hold their savings and how they can deploy it for charitable purposes – to the far larger universe of workplace plan participants.
For more on the SECURE 2.0 changes already affecting your retirement account, see 401(k) rule changes most people missed.
Why This Bill Matters Now: Tax Law Changes and the QCD Advantage
The bill arrives at a moment when the tax landscape for charitable giving has shifted considerably. The One Big Beautiful Bill Act (OBBBA), passed in July 2025, introduced new constraints on charitable deductions for itemizers – changes that, paradoxically, make QCDs more attractive than ever.
For itemizers, the OBBBA limits the deductibility of charitable donations to the amount that exceeds 0.5% of their adjusted gross income (AGI). For example, if your AGI is $160,000, you may deduct only donations that exceed $800. If you donate $35,000 in cash to a nonprofit, only $34,200 is deductible.
Because itemizers may see a reduction in the tax benefits of donations under the new rules, this change could make the tax savings from a QCD even greater than itemizing charitable donations in some situations. For 2026 onward, all itemized deductions are also limited to a maximum tax benefit of only 35 cents on the dollar, versus the prior maximum of 37 cents.
A QCD becomes even more valuable under the 2026 rules because it bypasses both the AGI floor and the 35% cap by reducing taxable income directly, without relying on itemized deductions. It also has implications beyond the immediate tax year. Lower AGI can help reduce the following year’s Medicare premiums, which are tied to taxable income.
Under the changes imposed by the Tax Cuts and Jobs Act, the Joint Committee on Taxation estimated that only 10% of taxpayers would itemize their deductions – meaning the vast majority of retirees giving to charity receive no tax benefit from a traditional cash donation. A QCD sidesteps that problem entirely, because it works whether you itemize or not.
The Growing Appetite for QCDs
The demand for this type of giving vehicle is accelerating. A 2026 QCD report from FreeWill found that QCD giving has grown over the last two years – by 56% in 2024 and 47% in 2025 – and that 46% of organizations expect donors to lean even more heavily into tax-efficient options like QCDs in the coming year.
That trajectory makes the Charity Parity Act not just a technical fix, but a timely policy response. If the legislation passes, it would open QCD access to a much larger pool of retirement savers at precisely the moment when demand for tax-efficient giving is at its highest.
Allowing QCDs from 401(k)s could also fit into the evolving role of 401(k)s in retirement planning. Large plans are increasingly adding features that may entice retirees to keep their funds in those plans rather than move them to IRAs or elsewhere – including more flexibility for retiree withdrawals and annuity options in their lineups.
What the Rules Currently Allow – and What Would Change
Existing QCD Parameters
Under current law, several important rules govern how QCDs work from an IRA. QCDs can be made to a qualified 501(c)(3) organization eligible to receive tax-deductible contributions. Some charities do not qualify, including private foundations, donor-advised funds, and supporting organizations. Organizations that provide goods or services in exchange for donations are also not eligible.
Once the distribution is made payable to you rather than the charity, it no longer qualifies as a QCD. That distribution becomes taxable, even if you donate the full amount to a qualified charity the same day. Timing and mechanics matter – the transfer must go directly from the custodian to the charity, without the funds touching your account.
QCD limits are now indexed for inflation. For the 2026 tax year, the annual QCD limit is $111,000 per individual, up from $108,000 in 2025. Married couples filing jointly may each make QCDs up to that limit from their own IRAs. A one-time QCD of up to $55,000 may also be used to fund certain split-interest charitable vehicles, such as charitable gift annuities or charitable remainder trusts, also adjusted for inflation.
Reporting Requirements Are Also Changing
Beginning with tax year 2025 reporting, IRA custodians are required to report QCDs using a specific distribution code on IRS Form 1099-R. This change is intended to improve reporting clarity and reduce the need for manual adjustments when preparing tax returns.
What the Charity Parity Act Would Add
If passed, the bill would allow the same direct-transfer mechanics to apply to employer-sponsored plans – 401(k), 403(b), and 457(b) – without requiring a prior rollover to an IRA. Among other things, the legislation seeks to provide parity between IRAs and employer-sponsored retirement plans. The annual limit, eligibility age, and qualifying charity requirements would remain the same. The only change is where the money can originate.
It remains unclear at this point whether the legislation will advance through committee. Both the House and Senate versions have been referred to their respective tax-writing committees – Ways and Means in the House, and Finance in the Senate – where the bulk of tax legislation is negotiated. The bipartisan sponsorship is a favorable signal, though congressional timelines for retirement-related legislation are often unpredictable.
Read More: Your Social Security Check Could Jump in 2027 – Here’s What the Numbers Show
What This Means for You
The Charity Parity Act is a targeted, technically straightforward piece of legislation with meaningful real-world implications for retirees who give to charity. Several things are clear from the current evidence.
First, the existing QCD rules are already among the most powerful tax tools available to retirees aged 70½ and older. The QCD provides a tax-free path to charitable giving for IRA owners – particularly those who take the standard deduction and wouldn’t otherwise receive a tax benefit from donating. The Charity Parity Act would extend that same benefit to the millions of Americans who hold their savings primarily in 401(k)s, 403(b)s, and 457(b)s.
Second, the cost and friction of the current rollover workaround are real. Rolling a 401(k) or 403(b) balance into an IRA to access the QCD can trigger account-closing fees, outbound transfer fees, broker transfer fees, or fees charged by the receiving IRA custodian. Participants with balances across multiple employer plans would need multiple rollovers to accomplish what a single direct transfer would handle under the proposed law.
Third, the timing of this bill coincides with a shifting tax environment that has made QCDs more valuable relative to traditional cash donations for most retirees. The new AGI floor and itemized deduction cap introduced by the OBBBA in 2025 make the QCD’s ability to reduce taxable income directly – without touching deductions – especially useful going forward.
If the Charity Parity Act passes, the practical steps for a 401(k) holder who wants to give to charity would be straightforward: confirm you are age 70½ or older, identify a qualifying 501(c)(3) organization, contact your plan administrator to arrange a direct trustee-to-charity transfer, and ensure you don’t exceed the $111,000 annual limit. As with all IRA QCDs today, the funds must go directly to the charity – never to you first.
If the bill does not advance this session, the existing strategy remains available to those willing to execute a rollover to a traditional IRA before making the QCD. That process adds time and potential cost, but it does work. Consulting a tax advisor before initiating any such transfer is strongly recommended, as the specific mechanics – particularly around plan fees, withholding rules, and documentation – can vary by plan administrator. The bipartisan coalition behind the Charity Parity Act suggests there is genuine political will to close this gap. Whether that translates into law in 2026 remains to be seen.
Disclaimer: This information is not intended to be a substitute for professional financial advice, investment advice, tax advice, or legal advice, and is provided for informational purposes only. Always seek the guidance of a qualified financial advisor, accountant, or other licensed professional regarding your personal financial situation or investment decisions. Do not make financial, investment, or tax decisions based solely on information presented here. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.
A.I. Disclaimer: This article was created with AI assistance and edited by a human for accuracy and clarity.
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