A new bipartisan bill would expand tax-advantaged charitable giving for older Americans by allowing direct donations from 401(k) plans to charities.
Currently, qualified charitable distributions work only with IRAs. People age 70 1/2 and older can donate up to $100,000 directly to qualified charities each year without counting that amount as taxable income. This lets retirees satisfy required minimum distributions while supporting causes they care about without raising their tax bill.
The problem: roughly 60 percent of retirement savings sit in 401(k) plans, not IRAs. Retirees with substantial 401(k) balances cannot use this tax-efficient giving strategy directly. They must either roll the money into an IRA first, a step that creates paperwork and potential complications, or withdraw cash from their 401(k), pay taxes on it, and then donate. The second option wastes money to taxes.
The proposed legislation removes this barrier. Retirees could donate straight from 401(k)s to qualified charities, using the same $100,000 annual limit and receiving identical tax treatment. The change benefits both donors and nonprofits.
For retirees, the upside is clear. A 70-year-old with a $500,000 401(k) could donate $100,000 to their church or favorite foundation without triggering $20,000 to $37,000 in federal taxes, depending on their tax bracket. Over a decade, this difference compounds significantly.
The bipartisan nature of the bill signals genuine reform potential. Both parties recognize the value of letting people support charities efficiently. Charities themselves support the change, since it removes a barrier preventing larger donations from a major retirement account pool.
Employers offering 401(k) plans would need to implement this option, though the administrative lift remains