American Endowment Foundation on Donor Advised Funds

by News Guy on April 5, 2010

Changes to the 2010 tax laws allow a wide range of investors significant freedom to convert traditional IRAs to Roth IRAs, which offer numerous long-term financial planning and estate tax advantages.  Yet money moved from an IRA to a Roth is taxed by the IRS as ordinary income.

An alternative: Investors can convert Roth IRAs yet mitigate their tax liabilities through an offsetting, tax-deductible contribution to a donor advised fund (DAF). A DAF is a simple and cost-effective alternative to a private foundation.

Benefits  include:

  • The tax deduction from the DAF can be used to reduce or offset federal income taxes due on the Roth conversion,
  • Investors enjoy immediate tax benefits of the DAF while deciding later what charities to support,
  • No capital gains tax on long-term, appreciated assets contributed to the DAF,
  • Larger tax-free withdrawals from the Roth, since there are no required minimum distributions,
  • No estate taxes on the DAF, and
  • Assets in the Roth and the DAF grow tax free.

Founded in 1993, American Endowment Foundation (www.aefonline.org) is the nation’s leading independent sponsor of DAFs.  For the past eight years, it has been awarded the highest rating by Charity Navigator, America’s largest independent charity evaluator.

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