When Roths May Not Be Right
August 1, 2018
« Previous Article
| Next Article »
Login in order to post a comment
Comments
-
A strategy that allows maximizing Roth conversions now that recharacterizations are not permitted is to use the 60-day IRA window to return withdrawn funds and make the withdrawal late in December, keeping the funds in an account until taxes can be calculated early the next year. Then before the 60 days is up, deposit the maximum funds into a Roth as a conversion and any 'excess' return to the IRA. Of course this needs to be done carefully.
-
I am a CAP (Chartered Advisor in Philanthropy) and gifting IRA funds directly to charitable organizations has been both a personal as well as professional joy. Successful individuals who have maximized their IRA, 401k, profit sharing, 403b, deferred comp and other pre-tax accounts have an opportunity that is tremendous at age 70 1/2 (but not a day before, unlike RMDs) and I regularly assist my clients in the paperwork and process of using the QCD for donations. It is unfortunate that all pre-tax funds cannot be used -- only IRAs -- but rollovers into IRAs from those other type of accounts solves that issue. Also, some companies that send RMD checks monthly to clients will split those funds to distributions to more than one charity and also send the balance to the client's checking account. Otherwise a lump-sum distribution to a charity is needed and I suggest the summer months when most charities experience a drop in donations.
-
With respect to #11 Opportunity Cost, there is none. The funds that were in the taxable account would have produced income and capital gains that would have been taxed. Now they are gone and therefore those taxes are avoided. Meanwhile the value of the traditional IRA account, now Roth account has been increased dollar for dollar by the amount of funds taken from the taxable account. This results from the elimination of the tax liability that existed in the traditional IRA account, and those funds produce tax free income for the rest of the taxpayers life.