Converting to a Roth IRA? It’s a Good Time to Give
Thousands of Americans are expected to begin converting traditional IRAs to tax-free Roth IRAs this month, now that income restrictions on conversions have been repealed. But the decision whether to convert to a Roth IRA can be complicated. Taxes will have to be paid when you convert, which may not make sense if you expect to be in a lower tax bracket in future years. You’ll also have to decide whether to spread the tax on a 2010 conversion over 2011 and 2012, when tax rates could be higher than they are today.
One way to cut through these difficult questions is to establish deductions that minimize the Roth IRA conversion tax. Suppose your estate plan contains a large bequest for our benefit. If you accelerate that bequest into a 2010 gift, the charitable deduction would reduce or avoid the conversion tax. But what if you need all your assets to preserve current financial security? One strategy is to make a gift that provides a large deduction and lifetime income as well, through a charitable gift annuity or charitable remainder trust. You can magnify your deductions by postponing the initial payment from a gift annuity for several years, or by choosing to receive payments from a charitable remainder trust for 10 or 15 years, rather than for life.
Another idea is to contribute all or part of a home, vacation home or farm property this year but keep lifetime use of the property. Sylvia, age 68, owns a vacation home worth $400,000. She hopes to convert a $150,000 traditional IRA to a Roth IRA this year, but doesn’t like the idea of paying tax on $150,000 of additional income. However, if Sylvia makes a gift of her vacation property in 2010, while retaining lifetime occupancy, she will receive a charitable deduction of almost $200,000 – which simplifies her decision to convert to a “Roth.” We’d be glad to provide you with more information on planning gifts of any kind at any time.
Copyright © R&R Newkirk. All rights reserved.
One way to cut through these difficult questions is to establish deductions that minimize the Roth IRA conversion tax. Suppose your estate plan contains a large bequest for our benefit. If you accelerate that bequest into a 2010 gift, the charitable deduction would reduce or avoid the conversion tax. But what if you need all your assets to preserve current financial security? One strategy is to make a gift that provides a large deduction and lifetime income as well, through a charitable gift annuity or charitable remainder trust. You can magnify your deductions by postponing the initial payment from a gift annuity for several years, or by choosing to receive payments from a charitable remainder trust for 10 or 15 years, rather than for life.
Another idea is to contribute all or part of a home, vacation home or farm property this year but keep lifetime use of the property. Sylvia, age 68, owns a vacation home worth $400,000. She hopes to convert a $150,000 traditional IRA to a Roth IRA this year, but doesn’t like the idea of paying tax on $150,000 of additional income. However, if Sylvia makes a gift of her vacation property in 2010, while retaining lifetime occupancy, she will receive a charitable deduction of almost $200,000 – which simplifies her decision to convert to a “Roth.” We’d be glad to provide you with more information on planning gifts of any kind at any time.
Copyright © R&R Newkirk. All rights reserved.
