Retirees May Soon Gain Flexibility for Charitable Giving from IRAs
For retirees looking to support their favorite causes, a new legislative proposal could significantly expand their options. A bipartisan bill introduced in the Senate on March 3 aims to allow a popular tax-efficient giving strategy—the Qualified Charitable Distribution (QCD)—to be directed not only directly to charities but also into donor-advised funds (DAFs). This change, which mirrors a House bill from the previous year, would alter a long-standing rule and is sparking debate among philanthropy experts.
Understanding the Current QCD Rules
Today, individuals aged 70½ and older can make a QCD, which is a direct transfer of up to $111,000 (in 2026) from an Individual Retirement Account (IRA) to a qualified public charity. This transfer counts toward the account holder’s Required Minimum Distributions (RMDs), which begin at age 73 for most retirees. Critically, the amount donated is excluded from the donor’s taxable income, offering a significant tax advantage over taking an RMD as taxable income and then making a separate charitable contribution.
The Proposed Change and Its Supporters
The new Senate measure, now referred to the Finance Committee, would permit QCDs to be made to donor-advised funds. A DAF is a charitable savings account established at a public nonprofit. Donors receive an immediate tax deduction for contributing to the DAF and can later recommend grants to various IRS-qualified charities. Proponents argue this adds much-needed flexibility.
“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. His organization is among more than a dozen that publicly supported the bill’s introduction.
Why Donor-Advised Funds Are Currently Excluded
Under existing law, QCDs must go directly to operating charities. This excludes DAFs and private foundations. The rationale, according to tax attorney Richard Fox of the Law Offices of Richard L. Fox, is that the goal of the QCD provision is to move money immediately into the active charitable sector.
“A donor-advised fund is not subject to any minimum required distribution. The money may stay there for years,” Fox explained. This potential for long-term holding, he notes, has led to prior, unsuccessful legislative efforts to impose payout requirements on DAFs that grant an upfront tax deduction.
The scale of DAFs is substantial. According to the 2025 DAF Report from the Donor Advised Fund Research Collaborative, total assets in these funds reached $326.45 billion in 2024, a 27.5% increase from the prior year. Contributions that year were $89.64 billion, while grants issued totaled $64.89 billion.
The Tax Superiority of a QCD
For eligible retirees, a QCD is often the most tax-advantaged way to give, regardless of whether they itemize deductions or take the standard deduction. Fox emphasizes this point: “It’s almost always the superior tax move compared to a cash donation.”
For those taking the standard deduction ($16,100 for single filers, $32,200 for joint filers in 2026), a QCD provides a tax benefit that a regular cash donation does not. While a small above-the-line deduction for charitable contributions exists for standard deduction takers ($1,000/$2,000), any QCD amount is fully excluded from adjusted gross income (AGI).
For itemizers, the benefit is even more pronounced. Itemized deductions are subject to caps that limit the tax benefit for high earners to 35% of the deductible amount. A QCD, by excluding income from the start, effectively provides a benefit at the donor’s full marginal tax rate, which can be as high as 37%. Furthermore, recent rules require cash charitable contributions to exceed 0.5% of AGI before they are deductible, a “haircut” that QCDs completely bypass.
Using a QCD to satisfy an RMD is particularly powerful. It avoids the need to first take taxable RMD income, which could increase AGI and trigger negative side effects. A higher AGI can lead to greater taxation on Social Security benefits, higher Medicare premiums through Income-Related Monthly Adjustment Amounts (IRMAA), and reduced eligibility for other tax breaks.
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