The Lutheran Community Foundation

• Do you have clients who want to help their congregation or other charities?
• Does the client have a traditional IRA?
• Would your client benefit from a Roth IRA?

Watch the video, and use the resources below to see if you may have clients who can fulfill their charitable intentions in conjunction with a Roth Conversion.  (Click here to follow along with the powerpoint slides from the video.)

• Ensure that the deduction will be available at the time income is recognized.
• Be mindful of how the charitable deduction will affect the client's tax position if they choose to re-characterize the conversion.

Details: 

The tax law for 2010 has a unique feature that will allow a taxpayer to convert to a Roth IRA this year but defer the income recognition until the 2011 and 2012 tax years.  This unique feature of the law is only applicable to conversions that occur in 2010.  Therefore, you will likely have more conversations about Roth conversions with your clients this year than ever before.

The law has not changed with regard to undoing a Roth conversion, i.e. re-characterization.  A taxpayer has until October 15th of the tax year following the Roth conversion to re-characterize. Although the law allows a taxpayer to re-characterize their Roth conversion this is not true for charitable gifts.  It is critical that clients understand the irrevocable nature of charitable gifts and the rules related to charitable deductions if they plan to incorporate a charitable deduction into their Roth conversion strategy.

For example, those that convert in 2010 but plan to defer the income recognition until 2011 and 2012 might consider delaying the gift until after October 15, 2011 so that the client has a complete picture of how the Roth conversion performed.  Conversely, if your client elects to recognize all of the income in the 2010 tax year they might consider delaying the gift until the later part of the year so that they have a longer period of time to determine if it is likely that they will re-characterize in 2011.