Combining Charity with IRA Conversions to Increase Wealth

Charitable contribution strategies can help generate lifetime income and also pay for an IRA conversion.

Suppose you have a large traditional IRA you’d like to convert into a Roth IRA. You want to avoid those large required minimum distributions after age 70½ and help you or your heirs receive tax-free income in the future.

If the Charitable Remainder Trust or charitable annuity already is a good idea for you, the benefits might be multiplied when you convert all or part of a traditional IRA into a Roth IRA in the same year you execute one of those strategies.

Here’s how it works. You transfer property to either the CRT or charity, depending on the strategy you select. That generates a large tax deduction. If you don’t have enough other income that will be offset by the tax deduction, consider converting enough of your IRA so that all or most of the conversion is tax free after being offset by the charitable deduction. That sets you up for tax-free income down the road from the Roth IRA and also reduces the RMDs as times goes on.

Combining one of the charitable strategies with an IRA conversion ensures that the tax benefits will last for many years.

RW December 2013.