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Digital Estate Information Sheet
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Estate Planning Data Sheet
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Allen D. Porter

Subtitle: giving your kids “whole pizza dollars” instead of “pizza dollars with a slice removed”. Do you get the picture? IRA dollars have an income tax obligation attached– like dollars with a lien –-pizzas with a slice removed


  1. You have already decided to leave a charitable gift
  2. You understand that the gift will reduce the amount you give to your children
  3. You have liquid assets passing under your will and you have an IRA

Question:  How to best implement your charitable gift

Naming Charity –(1) As a beneficiary under will or (2 ) As an IRA beneficiary

The Point: not all dollars are created equal.

The dollars passing under your will are whole Pizza dollars ($1)

The dollars passing from your IRA are dollars with a slice taken out (.75)

I am sure your kids are smart –they know they would prefer 100 cent dollars rather than 75 cent dollars. But your kids won’t get the right to choose which dollars to receive. You are the one deciding how to structure the charitable gift.

So if you want to be good to your kids give then the 100 cent dollars and give the Charity the IRA dollars.

The good news is that you can do this without short-changing the Charity. Unlike your kids the Charity does not have to pay the tax on the IRA dollars. The 75 cent dollars in their hands are 100 cent dollars. The missing slice of the pizza is restored. WIN WIN!  The charity doesn’t care which dollars it receives.

[Note that same analysis applies when comparing IRA approach with naming charity as beneficiary of life insurance. Life insurance dollars are whole pizza dollars.]

So how do you make the charity a beneficiary or your IRA?

There are some problems and a solution.

The problem is:

  • Most IRAs will not allow you to designate a dollar amount to a beneficiary – instead it must be a percentage amount.
  • You have a dollar amount in mind that you want to pass to the charity and the amount in your IRA keeps changing with market conditions and as you take minimum distributions withdrawals

The solution is:

Move funds from you main IRA into a separate “charitable IRA” ( a plan-to-plan transfer with no income tax consequences)

  1. Initially the “charitable IRA” would be funded with the amount of your desired charitable bequest (note while you are alive it is still your IRA with a RMD requirement)
  2. Rebalance by transfers in and out if the amount in the IRA grows too much or shrinks below your desired amount
  3. If only one charity to benefit name it as the sole beneficiary; if more than one charity to benefit use % to divide among them
  4. By having a separate Charitable IRA you also avoid the problem of having the charitable beneficiary mixed with individual beneficiaries which can interfere with individual beneficiaries’ right to stretch out RMD payments over their lifetime.

CAVEAT: This is the simple plan. There are more sophisticated plans involving appreciated assets and charitable remainder trusts – CRUTS AND CRATS. They are beyond the scope of this short presentation.


Allen D. Porter

Converting a traditional IRA (or qualified plan funds) to a Roth IRA can present an attractive option.

Converting a traditional IRA to a Roth IRA requires the taxpayer to pay income taxes on the amount converted. Treating this as an advantage seems counter-intuitive since many taxpayers have contributed to IRAs so as to defer the tax until IRA distributions are received. Here are some of the benefits from converting a traditional IRA to a Roth IRA:

  1. All future income taxes on Roth IRA distributions, including all future growth within the account, are waived.  By prepaying the tax, no future income tax will be due when qualified distributions are made from the Roth IRA.
  2. No minimum distributions are required to the taxpayer or a beneficiary spouse, or to a spouse who rolls the Roth IRA into his or her own IRA. The full Roth IRA can accumulate tax-free for a longer time while avoiding distributions which are not currently needed.
  3. Distribution to non-spouse beneficiaries will also be tax free, but these beneficiaries must take required minimum distributions. The distribution can be stretched out over their lifetime as calculated under IRS tables. This presents the opportunity for a long-term stream of tax free income.
  4. The income tax which results from the conversation to a Roth IRA should be paid from other assets of the taxpayer. Otherwise the benefit of the conversion is diluted. These payments like any other lifetime expenditures will result in a reduction in the taxpayer’s estate for estate tax purposes. The Roth IRA will be part of the taxable estate.

Conclusion. Converting a traditional IRA or qualified plan funds to a Roth IRA combined with naming younger family members as ultimate beneficiaries can produce a long-term stream of tax free payments. The income tax is prepaid up front on the amount converted. Future qualified distributions of the converted amount and the capital growth on that amount are free of income tax. Of course, an offset is that the tax is paid sooner and the future earnings on that amount are lost.