Key Takeaways
- A listener on The Retirement and IRA Show plans to convert $250,000 of his $500,000 traditional IRA to a Roth over two to three years to fill the 10% and 12% tax brackets.
- If all of it is taxed at 12%, the conversion costs up to $30,000 in federal tax.
- IRA owners 70½ or older can give straight from the IRA to charity tax-free, and the gift counts toward that year’s required minimum distribution.
- For money headed to charity anyway, leaving it in the traditional IRA and giving it that way costs $0 in federal tax.
A listener to The Retirement and IRA Show wrote in with a setup most savers would envy. He has $1.8 million in retirement accounts, with $1.3 million already in a Roth and $500,000 in a traditional IRA.
Host Jim Saulnier read the letter out on the show’s Oct. 28 episode. The listener plans to convert half the traditional money, $250,000, to a Roth over the two to three years after he retires, “just so I can fill the 10 to 12 bracket.”
For a lot of retirees, that’s a smart use of low brackets, and the hosts had no problem with it. But they raised one question that could make it a $30,000 mistake: is any of this money going to charity?
Charity has its own way out of an IRA
An IRA owner who’s at least 70½ when the money goes out can give it straight from the IRA to a charity, tax-free, under the IRS’s rules in Publication 590-B. That’s a qualified charitable distribution, or QCD, and it counts toward that year’s required minimum distribution.
That was Saulnier’s point. “When you hit 70 and a half, you can give your RMD directly to a charity,” he said. “Why convert if you’re going to give it to charity?”
The listener didn’t say whether he’s charitably inclined, and Saulnier noted as much. For anyone who is, the tax on the two paths is far apart.
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Same $250,000, very different tax bills
A Roth conversion is taxed as income in the year it’s made. Under the IRS’s 2026 brackets, a married couple filing jointly pays 10% on taxable income up to $24,800 and 12% up to $100,800, with 22% above that. For a single filer, those lines are $12,400 and $50,400.
Say the listener files jointly, since his letter says “we.” Spread over three years, $250,000 is about $83,333 a year. That fits under the 12% ceiling if he has no other income. Spread over two years, it’s $125,000 a year, so he’d need deductions to keep every dollar at 12% or below.
If all of it is taxed at 12%, the bill tops out at $250,000 × 12% = $30,000 in federal tax. Anything that lands in the 10% bracket costs less, which is why it’s “up to.”
The other path leaves the $250,000 in the traditional IRA and gives it away as QCDs from 70½. Federal tax on those gifts: $0.
| Metric | Convert, then give | Give straight from the IRA |
|---|---|---|
| Amount | $250,000 | $250,000 |
| When it can start | After he retires | At 70½ |
| Federal tax | Up to $30,000 | $0 |
According to his letter, he’d pay the conversion tax from cash. He has $100,000 in savings and CDs, plus $400,000 in a brokerage account, so he can afford it. But if the money ends up with a charity anyway, that $30,000 bought him nothing.
“You’re actually taking money that would otherwise have gone to the charity and sent it to Uncle Sam,” said Chris Stein, Saulnier’s co-host.
Convert what you’ll spend
None of that makes the conversion a bad idea on its own. The hosts’ view is that money a person will actually spend probably won’t be taxed much more cheaply than 10% or 12%, and they don’t expect the brackets to go lower.
So the split comes down to where each dollar is headed. Money he or his family will spend can go to the Roth at those rates. Money he expects to give away costs less if it stays in the traditional IRA. From there, it can go out as QCDs from 70½, or pass to a charity named as the IRA’s beneficiary, as the hosts suggested.
A QCD goes straight from the IRA to the charity, and the owner has to be at least 70½ on the day it’s made, so a younger retiree’s gifts wait until then. QCDs also carry a yearly dollar limit, so a gift this size would go out over several years.
For anyone lining up a conversion before year-end, where the money is going is the question to answer first.
It all comes down to the gift
If you’re planning to give your IRA to charity, converting $250,000 first could cost up to $30,000 in federal tax that a QCD would have avoided. My take: convert the money you’ll spend, and leave anything headed to charity right where it is.
Of course, the listener never said he’s giving any of it away. If he isn’t, the hosts’ approval of the conversion stands. The brackets also move each year with inflation, so the 12% ceiling in the years he converts won’t be 2026’s $100,800.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
