New Bill Would Expand Tax-Free Charitable Giving From DC Plans

A bill introduced in Congress Wednesday would enable Americans to make tax-free charitable donations directly from their employer-sponsored retirement accounts, expanding a benefit currently limited largely to individual retirement accounts. 

The bipartisan “Charity Parity Act,” was introduced in the House by Representatives Don Beyer, D-Virginia, and Mike Kelly, R-Pennsylvania, and in the Senate by Senators Kevin Cramer, R-North Dakota, and Chris Coons, D-Delaware. The measure would extend qualified charitable distribution, or QCD, treatment to employer-sponsored defined contribution plans such as 401(k)s, 403(b)s and governmental 457(b) plans. 

Under current law, Americans age 70.5 and older can donate up to $111,000 annually from an IRA directly to qualifying charities without counting the donation amount as taxable income. But retirees whose savings are held primarily in workplace retirement plans must first roll those assets into an IRA before making a qualified charitable distribution, often triggering tax costs, delays and additional administrative hurdles, the lawmakers said. 

The legislation seeks to align the treatment from both kinds of retirement savings, allowing direct charitable distributions from employer-sponsored retirement plans. The bill would amend the Internal Revenue Code to exclude those distributions from gross income, and therefore from income tax obligations, if they are transferred directly to eligible charitable organizations. 

The proposal builds on prior bipartisan retirement and charitable giving legislation, particularly the Legacy IRA Act provisions included in the SECURE 2.0 Act enacted in 2022. That law expanded and modernized QCD rules for IRAs, including allowing certain one-time charitable gifts into life-income arrangements.  

Supporters of the new bill argue that Congress created inequities by limiting benefits under the Legacy Act to IRA holders while excluding workers and retirees who kept savings in employer-sponsored plans.   

“Charities provide a critical range of services across the country and have been facing mounting [financial] pressures in recent years, both from rising demand and higher prices. While progress has been made in Congress to support the generosity of the American people, further work is needed to put the charitable sector on more stable footing,” Beyer said in a statement announcing the bill.  

The bill has attracted support from a broad coalition of nonprofit and charitable organizations, including the American Heart Association, National Council of Nonprofits, United Way Worldwide and Independent Sector. 

The legislation was referred to the House Ways and Means Committee and the Senate Finance Committee, where several of the co-sponsors currently serve.