Roth IRA Conversion Now Open to All Income Levels

Same-year charitable gift saves tax, starts your legacy

If you've been thinking about making a major gift to your community or establishing your charitable legacy, then 2010 may be a prime time to begin.

Prior to 2010, only people with taxable income of less than $100,000 were eligible to convert their traditional IRA into a Roth IRA.

The benefits for making a charitable gift in the same year you convert your traditional IRA to a Roth IRA are enhanced with the opportunity to increase tax deductions in an unusually high-income year.

When a person converts his/her IRA to a Roth IRA, the amount transferred is considered taxable income--potentially significantly increasing the current tax liability and pushing him/her into a higher tax bracket in the year of the conversion. An individual can choose to spread the 2010 incurred taxes equally over the next two years (2011 and 2012 income tax returns). Paying this tax may be problematic for someone under 59½, who will incur a 10% penalty for any withdrawal from the traditional IRA that does not go directly into the Roth IRA.

You can lower your tax bill by finding additional tax deductions, including a charitable gift to the community foundation. The chart below compares the tax implication for a married couple filing a joint tax return:

* Does not reflect personal exemption phase out and itemized deduction limitation.

Your charitable gift can be designated to support a major community project. You can also establish or add to a Donor Advised Fund, permitting you to take the tax deduction in this high-income year and suggest grants to causes you care about for years to come. A variety of fund options provide simple, powerful and highly personal approaches to giving and granting.

Of course, whether this is the right financial, tax and giving strategy depends on your personal circumstances and goals. The Wayne County Community Foundation is always ready to meet with you and your professional advisor to discuss what is best for you and your estate. We can explain options for turning this gift into a meaningful legacy for you, your family and the community you care about.