LUTHERAN COMMUNITY FOUNDATION Roth IRA Conversion Opportunities through Charitable Giving

2010 ROTH CONVERSION OPPORTUNITY Do you have clients who want to help their congregation or other charities? Does the client have a traditional IRA? Would your client benefit from a Roth IRA? This is the year to act on charitable intentions to facilitate the Roth.

2010 ROTH CONVERSION OPPORTUNITY Starting with the client wanting to convert to a Roth. Would your client prefer that the amount of tax obligation create a charitable gift instead of going to the government in the form of taxes?

ROTH CONVERSION YOUR IDEAL MARKET Client who has a traditional IRA and wants to convert to a Roth. Client is charitably minded, plus: –Would like to create a streamlined charitable giving plan. –Is interested in endowing a favorite charity or church. –Would benefit from lifetime income. –Has a highly appreciated capital asset, real estate, family business, securities. –Has family and an interest in passing along charitable tradition.

ROTH CONVERSION MINIMIZE TAX LIABILITY Donor Retired engineer has $550,000 in a traditional IRA. Goal Convert to a Roth in Would like to minimize the tax liability and support his favorite charities. Solution Converted $300,000 of traditional IRA to Roth. Uses $30,000 of other assets to create an LCF donor advised fund. Receives a $30,000 charitable income tax deduction, which partially offsets the tax liability for conversion. Member makes annual grant recommendations from his LCF fund to his favorite charities – he decides when and how much to grant, and has the option of remaining anonymous to the charity(ies).

ROTH CONVERSION CREATE LIFETIME INCOME Donor Couple, 56 and 58, with a $350,000 traditional IRA. Owns appreciated stock FMV $100,000 and basis of $10,000. Goals Convert to a Roth in 2010 and create a stream of income. Solution Opportunity to convert to a Roth as part of plan. Create a flexible deferred gift annuity with $100,000 stock. Members decide when to start income, sometime between age 70 and 80 for older spouse, rates will range from 8.4% to 15%. Gift annuity creates $24,631 charitable income tax deduction. Members set up LCF donor advised fund to permanently benefit favorite charities at the end of their lives.

ROTH CONVERSION COMBINATION ROTH AND TRADITIONAL Donor Retired doctor has $800,000 in a traditional IRA. Goal IRA beneficiaries are 90% to his children; 10% to his church. Solution Opportunity to convert to a Roth as part of plan. Don’t convert the 10%, which will go tax free to the church. Converting the charitable portion would result in unnecessary taxes paid. Donor names the LCF as a 10% beneficiary of the traditional IRA. Upon his death, IRA proceeds will go to his donor advised designated fund to benefit the church with an annual grant.

ROTH CONVERSION INVOLVE THE FAMILY Donors Couple with children and grandchildren. Traditional IRA of $620,000. Goals To convert to Roth IRA and to name children as beneficiaries. To encourage a tradition of giving within family. Solution Couple establishes donor advised fund with gift of securities. Charitable deduction offsets Roth conversion. Each year, couple meets with family to select charities for grants from their donor advised dynamic fund. LCF staff assists by researching family’s areas of charitable interests for suitable benefiting charities. Fund will continue for generations.

ADVANTAGE OF 2010 ROTH CONVERSION The 100K MAGI limitation expires in Only in 2010 can you defer the tax liability: –50% of tax liability paid in –50% of tax liability paid in –Must elect out of this option. CAUTION: Tax rates might increase in 2011 or Consider state tax rules.

ROTH CONVERSION TIMING TIPS Ensure that the deduction will be available at the time income is recognized. Be mindful of how the charitable deduction will affect the client’s tax position if they choose to re-characterize the conversion. Example: –Client converts in 2010 but defers income recognition until 2011 and –Make sure that the timing of the deduction will cover the tax liability. –Consider delaying the gift until after October 15, 2011, which is the last day to re-characterize a conversion that occurred in 2010.

ROTH CONVERSION TIMING TIP Example: –Client converts in 2010 and elects to recognize income in 2010 tax year. –Client has until October 15, 2011, to re-characterize. –Consider delaying the gift until the end of 2010 tax year.

ROTH CONVERSION RESOURCES Thrivent Tools Roth Conversion Calculator What If Calculator RMD Calculator LCF Tools Gift Calculator Gift Story Giving Options Tool

ROTH CONVERSIONS WHAT NEXT? Identify suitable prospects from your client base. Contact an LCF gift planner for assistance at: – –

HOW DO YOU WANT TO CHANGE LIVES AND SPREAD JOY? Thank you! The Lutheran Community Foundation is a public charity that serves donors and the community through charitable funds, and is independent of Thrivent Financial for Lutherans and its financial representatives.