Craig Wear shows how to pair Roth conversions with charitable donations to reduce taxes. Converting $100,000 creates $100,000 in taxable income, but a $30,000 charitable gift cuts that to $70,000, letting more money grow tax-free in the Roth.
If you're an IRA millionaire, you likely should be doing Roth conversions. You move money from a pre-tax IRA to a tax-free Roth IRA. That creates taxable income in the year that you do the conversion. Now, most people think, look, I'll do the Roth conversions one year. I'll do the charitable giving another year. Well, that's a mistake. Here's a coordinated strategy. In a year where you're doing a large Roth conversion, you can use charitable giving to offset some of the taxable income. The conversion creates income. QCDs or large charitable contributions reduce income. They work. Together that way. Here's an example. You convert $100,000 from your IRA to a Roth. That's $100,000 of taxable income. If you're already giving $30,000 to charity annually, send that $30,000 as a QCD. Now you've got $70,000 of net taxable income instead of $100,000. More money ends up in the Roth. It grows tax-free forever. And you've funded your giving at the same time.
