Sep 1, 2010 12:00 PM

Give to a nonprofit and consider using a donor-advised fund to help take some of the bite out of the tax due

By Sarah C. Libbey

Roth individual retirement accounts offer the enticing benefits of tax-free growth and the ability to make withdrawals during retirement when certain conditions are met.¹ But prior to this year, there was an income restriction on who could convert a traditional IRA to a Roth IRA. Beginning this year, the eligibility requirements for conversion changed: Now, even taxpayers with modified adjusted gross incomes of more than $100,000 can shift assets held in traditional IRAs and other retirement vehicles to Roth IRAs. According to a 2010 Fidelity Investments study (the Fidelity Study),² 40 percent of clients working with tax advisors are now eligible to convert their qualified retirement savings plan to a Roth IRA, up from 13 percent in 2009, and 35 percent of these clients are expected to complete a conversion by year-end.

But making the decision whether to convert isn't an easy one. Taxpayers need to consider their time horizon, taxable income and perhaps most significantly, their ability to pay the income taxes incurred when converting. The income tax can be daunting and is essentially an out-of-pocket cost out of a client's taxable accounts. So your role, as an advisor, is to first look at whether it makes sense for your client to convert to a Roth IRA. If so, you should suggest strategies to reduce your client's income tax liability. And that's where tapping into your client's philanthropy comes in: A donor-advised fund (DAF) may be the optimal strategy to offset the tax cost of a Roth IRA conversion and support your client's charitable planning objectives now and in the future.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

Poll

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

Click here to download the 2011 Trust Glossary

50 Years Ago This Month

Click here to read the issue.

50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

Click here to view the most up to date guide (September 2011)

Press Releases