Ordinarily, favorable tax benefits come at a high cost—but not always. We helped one client over successive years to realize the powerful payoff of a Roth IRA conversion, yet without the steep price of having to pay tax on any as-yet-untaxed money moved to a Roth. Money in Roth IRAs benefits from a prolonged period of tax-free growth. Money that comes from a Roth in retirement is tax-free, whereas cash from a regular IRA is taxed at the individuals top tax bracket.
The client’s fact pattern presented an opportunity for Roth conversions at minimal tax cost, primarily because of generous charitable deductions. Working with the client’s CPA, we helped convert over $500,000 from traditional IRAs to Roth IRAs over successive years. The client’s generosity created an opportunity to reap the powerful rewards of Roth conversions without a steep tax cost.