The Tiny Tax Law Change That Could Spark a Wave of Boomer Charity

Written by HOWARD HUSOCK at Philanthropy Daily

As we enter the end-of-year charitable giving rush—reflected in the requests flooding our inboxes—it remains true that the United States is the most charitable nation in the world.

Just the individual charitable giving captured on tax returns—not including what goes into collection plates on Sundays or red Salvation Ary buckets, for instance—amounts to 1.44 percent of GDP, twice as much as any other country. What’s more, the unprecedented wealth accumulated by the retiring Baby Boom generation stands to be source of a tsunami of additional giving. Prospective retirees—aged 70 and up—hold a staggering $1.35 trillion in retirement account savings.

But a little-known aspect of retirement account tax law discourages withdrawals from these tax-advantaged savings accounts from being directed to charities, such as local community foundations. The barrier stems from the rules governing annual Required Minimum Distributions (RMDs) from retirement accounts—the regulation that those 73 and over withdraw funds every year from those 401Ks and pay taxes on the cash. Retirees can donate some of that cash to charity, but may not be able to avail themselves of the charitable tax deduction if they don’t itemize their returns—like more than 90 percent of taxpayers.

A simple change in tax law—proposed by a bipartisan duet of Congressional members—could encourage more of those RMDs to go to charity. This would require direct donations, untaxed, to the fastest-growing segment of American charity: donor-advised funds (DAFs), including the more than 700 community foundations that support everything from college scholarships for local high school students to hospitals and local symphonies.

Examples of these funds include the New York Community Trust—with $3.5 billion in assets housed in 2,200 individual donor accounts, dedicated toward “equitable and thriving communities” in metro New York City—and the Marietta, Ohio community foundation, with $60 million contributed by its 400 donors to “strengthen Washington County.” These two examples are part of the burgeoning sector of donor-advised funds of all sorts, ranging from those run by major financial firms such as Vanguard and Fidelity, to those housed in community foundations. DAFs hold more than $251 billion and have sharply increased as a source of giving, from $28 billion in 2019 to $54 billion in 2023.

There is no doubt that both the assets of DAFS and their giving—which stands at an impressive 24 percent of assets annually, far more than is allocated annually by private foundations such as Ford or Robert Wood Johnson—would increase if it were easy to directly deposit minimum distributions to a donor-advised fund, without the contribution being taxed, as happens to a standard charitable contribution.

But the ability to send an RMD to a DAF is prevented by an obscure provision of “IRA rollover” rules in the Pension Protection Act, adopted in 2006. That act does allow for charitable giving—through so-called “qualified charitable distributions”—donations directly made via checks to a specific charity. This is no easy process, however. At Vanguard, for instance—with its $10 trillion under management—retirees must request that a check in the name of a specific charity be sent to them and then they must forward the donation.

A direct donation to a DAF—from which it’s simple to cut checks to any number of charities—is prohibited. And unpopular: this proscription, argue the Council on Foundations and the Philanthropy Roundtable, is “an unnecessary obstacle for donors who want to simplify and coordinate their charitable giving by supporting multiple charities with a single gift.” The reality of current federal charity law is that it is easy to give large individual gifts, but difficult to make lots of smaller ones.

In a period of political polarization, a proposed change in the aforementioned Pension Protection Act has attracted both a Democratic and Republican sponsor. Rep. Adrian Smith (R-Nebraska) and Rep. Jimmy Panetta (D-California) have jointly sponsored the IRA Charitable Rollover Facilitation and Enhancement Act of 2025 to repeal the “restriction on charitable rollovers from individual retirement accounts to donor advised funds.” Or, per Panetta, to allow donors “to support a broader range of causes.”

Time is running out for the legislation to pass the current Congress—even as the end of the tax year looms—with its requirement that required minimum distributions be taken. There could be opposition from some who view DAFs as a way to get a quick tax break through “warehouse” funds, rather than immediately supporting a charity. However, once funds are housed in a donor-advised fund they can only be used for charitable giving and cannot be taken back by the donor. Funds not disbursed as grants are invested, and can increase in value, enabling more charitable giving.

Overall charitable giving in the US—individual, foundation and corporate—has grown in recent years, reaching $592 billion in 2024, even outpacing inflation that year. Measured as a percentage of GDP—it’s been stagnant, long stalled at 2 percent.

The Smith-Panetta bill, albeit short and technical, could unlock a wave of Boomer charity that’s been stuck behind an arbitrary tax wall.