Tax & Estate Planning

Tax Legislation and Charitable Giving

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Expiration of IRA charitable rollover provision
The provision which allowed a qualified charitable distribution (QCD) from an IRA expired on December 31, 2013. Although Congress has reinstated QCDs a few times since their inception in 2006, there is no certainty that they will be reinstated for 2014 and beyond.

ROTH CONVERSIONS

Increased charitable donations may help offset the taxable income resulting from a Roth IRA conversion

Making a charitable contribution may offset the potentially increased income tax liability incurred from the conversion of a traditional individual retirement account (IRA) to a Roth account.

Steps you might take now

If you plan to accelerate income or convert to a Roth IRA account, consider increasing your planned charitable contributions in the year in which you incur the additional income. The extra tax deduction from your donations may help offset the increase in your taxable income.

In addition, if the charitable donation is made to a public charity that sponsors a donor-advised fund program, you'll be able to use the proceeds from a single donation to support multiple causes this year and into the future.

The Charitable Offset Strategy*

Hypothetical example: Making a qualified charitable contribution may reduce the tax cost of this Roth conversion by $39,600.

Chart: A charitable donation may help reduce tax cost of conversion

Hypothetical tax amounts assumed a married couple filing jointly, 2014 federal ordinary income tax rates, $300,000 of taxable income, $500,000 Roth conversion amount and a $100,000 fully deductible charitable contribution. Taxes would have been $75,313 with no conversion and no charitable contribution. The overall limitation on itemized deductions, other limitations, the federal alternative minimum tax, and state and local taxes are not taken into account.

Learn more

See how a charitable donation may minimize the tax impact of a Roth conversion.

*This is a simplified hypothetical example for illustrative purposes only. Tax results can very greatly depending on an individual's unique tax situation. Other strategies may provide more flexibility and similar savings, including utilizing other deductions and/or converting your assets to a Roth account over several years. Please consult with your tax advisor.