Roth conversion from IRA to offset funding a donor-advised fund
We are facing an inversion situation. We are thinking about moving a very low basis stock from our brokerage account to a donor-advised fund. We would then like to convert an equal value from an IRA to a Roth to offset this charitable contribution. What are the tax consequences that we may likely encounter from this conversion?
Permalink Submitted by Alan - IRA critic on Mon, 2014-08-11 18:48
You would need to determine how much less taxable income you will have due to itemizing the contribution. The contribution will be limited to a % of your AGI, perhaps 30% (but check that) with the balance carried forward. You also get no tax benefit to the extent your total itemized deductions fall short of your standard deduction. Once you determine how much the contribution will reduce your taxable income, you could convert an equal amount and your taxes would not rise assuming your IRA has no basis from non deductible contributions. Therefore, it is very possible that you would end up converting amounts in accord with how much the contribution actually reduces your taxable income each year for a few years. But the conversion decision is still based on what you pay for the conversion vs what you expect your average marginal rate to be in retirement. The only no brainer conversion is one that is done at a 0 tax rate, above that you need to make some future projections.