Fidelity's Charitable Offsets

By Ackerman, Ruthie | American Banker, April 6, 2010 | Go to article overview

Fidelity's Charitable Offsets


Ackerman, Ruthie, American Banker


Byline: Ruthie Ackerman

With the tax deadline fast approaching, wealth management clients are deciding whether they are going to convert from a traditional IRA to a Roth IRA.

But before they do, advisers have one more conversion strategy to offer their clients, according to Fidelity Investments: the "charitable offset" strategy.

Fidelity suggests that clients donate to a charity with a donor-advised fund program, such as Fidelity's Charitable Gift Fund, as an "offset" to help reduce the potential tax implications of a Roth IRA conversion in the conversion year.

Donors can give to any nonprofit to help offset taxable income, but some may not want to make a large one-time donation to a charity. With a donor-advised fund program, individuals can recommend several nonprofit organizations and can donate over a period of time.

According to a recent Fidelity survey of almost 500 tax advisers, 40% of investors working with tax advisers are eligible for a Roth IRA conversion now that income limits have been removed, and 35% are expected to complete a conversion by the end of this year.

Prior to Jan. 1, 2010, only individuals with modified adjusted-gross incomes of $100,000 or less were eligible to convert assets from a traditional IRA or a 401(k) with a previous employer to a Roth IRA. Clients who want to convert funds from a traditional IRA to a Roth IRA have to pay taxes on the amount to be converted, but there is also a one-time provision in 2010 that allows clients to spread their tax income from the conversion equally over the next two years, 2011 and 2012. …

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