Bill Proposes Allowing Tax-Free IRA Donations to Donor-Advised Funds, Ending Current Restriction

This bill, titled the "IRA Charitable Rollover Facilitation and Enhancement Act of 2025," makes one key change to the tax code: it removes the current ban preventing people from making tax-free charitable rollovers directly from their Individual Retirement Accounts (IRAs) to Donor-Advised Funds (DAFs). Right now, these qualified charitable distributions (QCDs) from IRAs, allowed under Section 408(d)(8) of the Internal Revenue Code for those 70 ½ and older, generally must go directly to active public charities, not to DAFs. This bill amends Section 408(d)(8)(B)(i) to lift that restriction for distributions made after the law passes.

Opening the Door: IRA Cash Meets Donor-Advised Funds

So, what's the big deal? Currently, if you want to donate from your IRA tax-free, the money has to land directly with an organization doing the charitable work. Think soup kitchens, research foundations, local museums. Donor-Advised Funds work differently. You donate assets (cash, stock, etc.) to a sponsoring organization (often linked to a financial institution or community foundation), get an immediate tax deduction, and then advise the sponsor on where to send grants from that fund over time. This bill would let IRA owners move money into a DAF structure as a qualified charitable distribution, which isn't allowed now.

Tax Break Now, Charity... Maybe Later?

The shift raises practical questions about the flow of charitable dollars. While allowing IRA rollovers to DAFs might look like more money going to charity, it could also mean funds sit longer in DAF accounts before reaching front-line organizations. The donor gets the tax benefit associated with the IRA rollover upfront when the money hits the DAF, but there's no federal requirement forcing those DAF funds to be distributed to active charities within a specific timeframe. This creates a potential situation where significant tax-advantaged dollars are parked in DAFs, benefiting the donor and the fund sponsor, while the charities doing the actual work wait longer for support. Essentially, the bill allows the tax advantage of an IRA charitable rollover without ensuring the money promptly fuels active charitable operations.