Charitable Giving/Roth Conversion Opportunity

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By Gary Meeks, RICP®

As you may be aware, the CARES Act has waived the required minimum distribution requirement for IRAs for 2020 because of the pandemic. The CARES Act has also presented an opportunity for more Americans to take deductions for certain donations on their taxes next year.

If you’re a retiree with plenty of cash, have an IRA and make charitable contributions, you may have a opportunity to move some of that tax deferred money from your IRA to a Roth IRA via a conversion and offset the tax implications with a charitable contribution. Normally, the amount being converted is taxable.

Here’s how it works; a married couple filing jointly with $100,000 in adjusted gross income in the 22% tax bracket could withdraw up to $71,000 from a traditional IRA as a regular distribution and remain in the 22% tax bracket, convert that to a Roth IRA, then make a qualified charitable cash donation of $71,000.

In this case, 100% of the Roth conversion is offset by the cash donation, which can be fully written off. This could be a great opportunity to transfer money to a Roth account, which can then be withdrawn income tax free in the future. Other advantages of having money in a Roth IRA versus a traditional IRA are no required minimum distribution requirements. If you end up leaving the Roth IRA to your beneficiaries, it will be income tax free to them. The opportunity to move the money to a Roth while the markets are lower could also be a benefit.

You may be wondering, what is a qualified charity? Here are a few that qualify taken from the IRS’s website irs.gov/charities. Others may qualify but are not listed below.

  1. A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
  2. A church, synagogue or other religious organization;
  3. A war veterans’ organization or its post, auxiliary, trust or foundation organized in the United States or its possessions;
  4. A nonprofit volunteer fire company;
  5. A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
  6. A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a lot or mausoleum crypt.

If you think you may benefit from this strategy, you should consult with a tax or financial professional to determine if this strategy makes sense for you.

Gary D. Meeks, RICP®, is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker dealer and Registered Investment Adviser. Cetera is under separate ownership from any other named entity. 90 W 100 N STE 6, Price, UT 84501 (435) 637-8160.  

The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Sources: Barron’s newspaper July 6, 2020, irs.gov/charities

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