Schwab Charitable is hopping on the Roth IRA conversion bandwagon, urging wealthy investors to take advantage of lifted income caps to lower their subsequent tax exposure through charitable donations.
“Given the choice, many would prefer to donate more to charity and have a lower tax bill,” said Kim Wright-Violich, president of Schwab Charitable.
The donor-advised fund administrator wrote in its How Charitable Giving Can Help Reduce Taxes Resulting from Roth IRA Conversions brief that the deductibility limit to most charities is 50% of adjusted gross income for gifts of cash, or 30% for gifts of appreciated securities. Gifts of appreciated securities held more than a year also avoid capital gains tax when they’re eventually sold.
The Internal Revenue Service eliminated income caps on Roth IRAs in January, allowing wealthy people worried about higher taxes when they retire to take the tax hit now. Traditional IRAs and 401(k)s allow people to save for retirement with pre-tax contributions, but it’s taxed as ordinary income when a retiree taps those assets for income.
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