A bipartisan group of lawmakers wants to make it easier for retirees to donate to their favorite causes from their nest eggs.
The proposal, called the Charity Parity Act, seeks to expand existing laws to allow older Americans to donate using funds from their 401(k) or similar employer-sponsored retirement plans.
Currently, retirement account-related contributions, known as qualified charitable distributions, can only be made through taxable retirement accounts (IRAs). So if retirees want to use their retirement savings to make a contribution, they must first withdraw the funds into an IRA, which will incur fees and paperwork.
“This legislation makes giving more accessible and equitable for retirees,” Mark Schoeberl, vice president of the nonprofit American Heart Association, or AHA, said in a statement.
The AHA is one of the nonprofit organizations advocating for change. Other supporters include the American Retirement Association, the American Cancer Society, the United Way, the Salvation Army and more.
Building on SECURE 2.0
The SECURE 2.0 Act, passed in 2022, made major changes to retirement savings that make it easier for millions of workers to save for retirement while giving retirees more flexibility in their savings.
The plan made two important changes affecting qualified charitable distributions: First, it set an annual limit on charitable distributions to be adjusted based on inflation. In 2026, the limit is $111,000. The second relevant change was the age at which retirement savers are required to make mandatory contributions to their retirement accounts. These mandatory withdrawals are called required minimum distributions, or RMDs, and usually begin at age 73 (unless the saver is still active).
In 2033, the RMD age increases to 75.
RMDs are more important than contributions from retirement accounts because those contributions satisfy the RMD rule and help retirees avoid, in some cases, higher taxes.
For example, if a retiree is required to take a $20,000 distribution from their IRA, that amount is generally considered taxable income, which could put them in a higher tax bracket, increase Medicare premiums or trigger Social Security taxes. Instead, some wealthy retirees whose basic needs are already met with certain sources of income choose to donate RMD money to a qualified charity to avoid the tax burden while helping a cause they care about.
Currently, that strategy only applies to RMDs from IRAs, but the SECURE 2.0 changes have helped make this a more tax-efficient way to contribute anyway. By 2024, qualified giving through IRAs increased by 56%, the data shows, and another 47% the following year.
The bipartisan Charity Parity proposal aims to build on that momentum by extending those rules to 401(k) plans — and it’s getting a lot of support, including two co-sponsors sitting on the Senate Finance Committee.
However, the proposal is still far from being confirmed, and it is not clear when the bill will go to the House and Senate committees and vote. But it made the fans happy.
According to Brian Graff, CEO of the American Retirement Association, this proposal “builds on the success of SECURE 2.0 by ensuring that retirees are treated fairly, regardless of where they hold their assets.”
“By reducing administrative burdens,” he added, “this legislation can help encourage greater giving while strengthening retirement security.”
