QCDs from 401(k)s
A recently released bill, titled the Charity Parity Act, would modify the rules governing qualified charitable distributions (QCDs) to allow taxpayers to make QCDs directly from 401(k)s. Under the current rules, QCDs are only available if they are transferred from the taxpayer's IRA to a qualifying charity. Currently, taxpayers who are at least 70.5 years old can transfer up to $111,000 (in 2026) from their IRA to a qualifying charity. The QCD offsets the taxpayer's taxable required minimum distribution (RMD) for the year--allowing the taxpayer to reduce their overall tax liability instead of taking a federal tax deduction for the donation. Because donations from 401(k)s are currently not eligible for QCD treatment, taxpayers who wish to take advantage of the strategy must first roll the 401(k) funds into an independently established IRA.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about the recent calls to allow QCD treatment for donations from 401(k)s.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: It makes very little sense that we limit the qualified charitable distribution option to IRAs while prohibiting them from 401(k)s. Millions of Americans participate in 401(k)s. Under the current regime, those taxpayers would have to open an IRA, move the 401(k) funds into the IRA and then execute the tax-friendly QCD from the IRA. All this does is create unnecessary paperwork and additional steps that shouldn't be necessary to take advantage of an otherwise-available tax break.
Byrnes: Allowing QCDs from employer-sponsored 401(k)s would, of course, make it easier for Americans who have only funded 401(k)s to participate in the charitable giving strategy while reducing their tax burden. This change would also create a new administrative headache for small businesses that choose to offer 401(k) savings options. Under the current regime, rolling over 401(k) funds into IRAs is not at all complicated. All taxpayers have the opportunity to open an IRA and execute a QCD.
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Bloink: If we want to encourage taxpayers to use their retirement funds to support their charities of choice in a tax-efficient way, we should be focused on making the process as simple as possible. What we have now is a system that creates an extra step--requiring the taxpayer to establish an entirely new financial account.
Byrnes: Realistically, we should be working hard to reduce the administrative hassles involved with 401(k)s and simplify the option for business owners. Creating new options and features could actually serve to discourage business owners from offering 401(k)s in the first place--especially if the QCD possibility is made a mandatory feature.
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Bloink: The rules governing traditional IRAs and 401(k)s should be aligned as much as possible—because 401(k)s and IRAs are designed to serve the same purpose. Should it become law, this new proposal actually makes the retirement savings regime more simple, instead of the current system where taxpayers must be ever-aware of the different features and rules governing each type of account.
Byrnes: Changing the rules at this point in the game really isn't necessary. We have to remember that when we're talking about QCDs, we're talking about higher-income taxpayers who tend to be more sophisticated in terms of their saving strategies. We can't say that the current process is too complex when we're talking about top earners who are willing to give their money away to minimize the tax liability otherwise associated with RMDs.