Short YouTube video (Craig Wear, CFP®) explaining how charitably oriented strategies can reduce tax bills from Roth conversions. He describes using donor advised funds to front-load charitable deductions to offset large conversion taxes and contrasts that with qualified charitable distributions taken from IRAs when required. The segment emphasizes blending both approaches for tax-efficient conversions when clients are already charitably inclined.
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There is a way that you can actually lower your Roth conversion tax bill while supporting the causes that you care about and love. So one client recently funded something called a donor advised fund to offset a six figure tax bill from doing their Roth conversions. They got the tax deduction, they supported their charities, and they kept their conversion on track. So donor advised funds are just a type of an account that you can set up at wherever you already whatever brokerage account or advisory firm that you're already using. It's a way to take money that's not in your IRA and use it to make a large contribution. If you know you're going to be making contributions for the rest of your life anyway, then you might as well consider front loading that while you're doing your Roth conversions, you get an immediate tax deduction and then you get a checkbook for flexibility of giving for the rest of your life and for your spouse. So it's not like you want to dump all your money into there, but if you use it strategically, it's a way to offset taxes and a big tax bill. So you just keep doing what you're going to do anyway. You just front loaded. On the other hand, depending on your objectives and whether you're how terribly inclined you are, there's also a way that you can wait until you have to take required minimum distributions and give through something called qualified charitable distributions. There's a lot of rules around them and there are limitations on how much you can actually give. And you have to make sure you give it directly from your ira, but they can work. And so if you consider both of those things and you blend those in now you're able to have conversions with the maximum amount of tax leverage. You convert as little as you possibly have to, meaning you pay as little tax as you possibly have to, and you end up doing some great things down the road for other people or other causes that you really care about. We've had a variety of clients that we've recommended these things to, and they work out great when somebody is already charitably inclined and they know that they're going to continue giving and their assets are set up just right. So charitable giving isn't just about generosity, it's about strategy. If you have some interest in learning more about this and the other subjects around Roth conversion, we'll put a link to a webinar that I did recently that you can kind of learn a little bit more about the bigger picture and kind of get a better idea of maybe some of the mechanics and the details around doing Roth conversions for you. Hope it's of some help to you. It's absolutely free. Just go check it out. Take care. Have a great day.
