IRA Charitable Rollover - He Who Giveth Can Taketh Away

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By Steven B. Gorin, Esq. Thompson Coburn LLP, St. Louis, MO

The Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458) eliminated the need to take a required minimum distribution (RMD) for 2009. §401(a)(9)(H). Because many people used a charitable rollover to satisfy their RMDs, look for the IRA charitable rollover not to have nearly the impact that had been hoped.

When one door closes, though, another one opens. A significant number of people have not been able to convert regular IRAs to Roth IRAs, because their RMDs caused their income to exceed certain limits. With no RMD for 2009, they might have a chance to convert in 2009 rather than 2010. §408A(c)(3). The latter concept is a huge tax-savings opportunity in today's volatile market. A taxpayer who converts an IRA and later finds that the value has decreased can change the effective date of the conversion to the date that has a lower value. Be sure to read up on the procedures for recharacterizing before embarking on this strategy.

To try to spur an economic recovery, our federal government is intentionally creating a massive deficit to increase our current record levels of national debt. In a few years, the chickens may come home to roost, and we might find significant income tax increases at our doorstep. Doing Roth conversions at today's rates might help save taxpayers from future higher rates. Buyer beware, though - one day Congress might decide to add income on Roth IRAs to its target list of revenue raisers (but the author is unaware of any specific plans or even general discussion regarding such a change).

For more information, in the Tax Management Portfolios, see Kennedy, 367 T.M., IRAs, and in Tax Practice Series, see ¶5610, IRAs.