Why Now Might Be the Right Time for Major Charitable Gifts and Roth Conversion

by Andy Gutwein

The Coronavirus Aid, Relief, and Economic Security (CARES) Act has brought on a lot of highly publicized programs. For instance, every business owner is likely aware of the Paycheck Protection Program (PPP), a forgiveable loan designed to provide relief to businesses and keep people on the payroll.

But one of the less prominent provisions of the CARES Act is the increase to the cap on charitable contributions. Typically, charitable deductions are limited to 60% of adjusted gross income in any given year. For 2020, though, that limit has been increased to 100%.* 

Have you been contemplating a major gift? This might be a good year to make that happen. 

While you're considering a major gift, you might also consider a Roth conversion of your 401k or IRA. In a previous article, I discussed the impact of the CARES Act and the acceleration of income taxes when a pre-tax 401k or IRA passes to the next generation. 

One suggested solution to this future acceleration is to convert from pre-tax to Roth. This conversion triggers the income tax now, so it would increase your adjusted gross income which could be offset by a charitable contribution. Even if you're not considering a charitable contribution, it could be a good time to consider a conversion. With the market down, the value of your account is most likely lower, resulting in less income from conversion and thus less tax to pay.

Depending on your personal goals and situation, there may be new opportunities available. 

As always, if you would like to discuss this or another planning topic, please feel free to contact me. I can be reached at andy.gutwein@gutweinlaw.com or at 765.423.7900.

*Note that the percentages cited apply to cash contributions, and the increased amount is not available for gifts to private foundations or donor-advised funds.