Roth conversions aren't the only tactic. Daniel Nigito, a certified financial planner in Bethlehem, Pa., often advises people converting at least $200,000 to use a charitable remainder trust to maximize guaranteed contributions to family and charity.
Here is how it works: The parents withdraw the IRA assets they intend to go to their children, and then use them to fund a charitable remainder annuity trust that would make payments to the parents for 10 years. The parents then use those payments to fund permanent, second-to-die life insurance in an irrevocable trust that would go to their children.
Suppose the parents want to convert a $500,000 IRA. Normally, that would generate about a $200,000 tax bill. But they could chop that bill to $105,000 by investing the $500,000 in a charitable remainder annuity trust.
If the trust paid the parents $32,500 a year, they could buy $1.6 million in life insurance that would ultimately go to their children. That is more than three times the value of the $500,000 IRA. Meanwhile, the trust would ultimately leave $600,000 to the charity, assuming 5% returns, says Mr. Nigito.
Glenn Ed and Janet Maurer, a retired couple in their 60s in New Tripoli, Pa., are using this strategy to fund life insurance for their two daughters and four grandchildren, and also to make donations to their church, a food bank and elsewhere. "Why not take control of our money and direct it where we want it to go?" Mr. Maurer says.
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