Charitable Success Solution®

Have cash or appreciated assets?  Prefer the benefits of a Roth IRA? There are strategies to shelter the tax when converting your IRA to a Roth IRA.

You can donate assets, such as cash, securities, real estate, etc to a new pooled income fund (“PIF”). The PIF sells the assets, any capital gain tax would be avoided by the donor. You as the donor then are eligible to receive the income from the respective donation and receive close to the all-time high, aged-based tax deduction. This significant tax deduction could be used to offset the tax on a Roth IRA conversion.  Distributions in Roth are tax free and you are not subject to Required Minimum Distributions (RMDs) as in an IRA.

Let us do a complementary detailed analysis for you and your accountant to review.

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Article – Sheltering Capital Gains Tax When Selling Appreciated Stock

Article – Sale of Corporation in a PIF

New Pooled Income Fund (PIF)

A type of mutual fund comprised of gifts that are pooled and invested together. Income from the fund is distributed to both the fund’s participants and named beneficiaries according to their share of the fund. If you are a donor to the fund, you and the other income recipients you choose receive quarterly payments for life, and upon your death the value of the assets will be transferred to the beneficiaries. Basically, a pooled income fund allows you to do three things: 1) ensure a perpetual income, 2) claim a current tax deduction and 3) make a future gift to charity.
For example, say you own stock with a value of $100,000. Then you donate the stock to the pooled income fund to eventually fund scholarships for underprivileged students and reserve for yourself an income interest for life. In the transfer of stock to the fund, you do not recognize a capital gain on the appreciated value since original purchase, so you avoid capital gains tax. You will also receive a charitable deduction for the year you enter into the pool, lowering your taxes.

  • This is the granddaddy of them all. 2018 looks to be a historic high tax deduction for new pooled income funds (less than three years old).
  • Why is the tax deduction so high? Revenue ruling 96-1
  • A PIF is very similar to a charitable remainder trust, the difference is that the donor doesn’t have the legal cost of setting up the trust. The charity has set it up and bears the administrative cost.

Charitable Lead Trust

A trust designed to reduce beneficiaries’ taxable income by first donating a portion of the trust’s income to charities and then, after a specified period of time, transferring the remainder of the trust to the beneficiaries. Using a CRT the donor is able to reduce taxes upon the estate left by the deceased. This is done by donating to charities from the estate until all taxes are reduced. Once this is accomplished, the estate is then transferred to the beneficiaries, who typically will face lower taxes. Many different organizations offer information regarding the set-up of these types of trusts. Examples are universities, colleges, and non-profit societies.

Lara, May & Associates, LLC advisors are not licensed tax professionals. They will work with a donor’s licensed tax professional for tax planning purposes. This communication is for educational purposes only and should not be regarded as a recommendation or donation solicitation. Charitable giving may not be right for everyone. A detailed analysis should be completed based on a donor’s individual need and unique situation to determine if a recommendation is suitable. Federal and State tax laws are subject to change.

E. Ronald Lara, CFP®

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