To convert or not, when estate is going to charity
Married couple in high, and going higher, tax brackets has already converted enough of their traditional IRAs to Roth IRAs to satisfy their intended bequests to human heirs. The remainder of their estate will go to charity. The couple expects their RMDs will exceed their spending needs. They plan to move in a few years from a state with no income tax to a state that does have an income tax. After the first spouse dies, the survivor will be in even higher tax/IRMAA brackets. There are funds available in taxable accounts to pay the taxes associated with any conversions. How do we evaluate whether the net benefit of reducing future RMDs makes doing conversions worthwhile?
Permalink Submitted by Alan - IRA critic on Mon, 2024-09-30 19:56
There are several variables, but since what is left will go to charity, why not stop the taxable conversions, and to the extent they do not need the RMDs, use QCDs to defer more to charity while still living. In addition, if expensive long term care is needed, the deduction will offset much of the RMD income that is not being offset by QCDs.
Additional variables to consider are their ages and health. The younger and longer their remaining LE is, the more likely that they may still wish to do modest conversions. Conversely, if older and in poor health, the conversions should stop.
Finally, the first spouse to pass does not have to leave all to spouse, some could be left to charity then. It will take a tax planning program to actually crunch the numbers.