Recently a client asked me about whether they should consider doing Roth conversions with some of their IRA money. They are 65, have a $500,000 Traditional IRA that has already been earmarked for charity, and had been reading articles on Roth conversions in retirement.
The answer is no, and the gap between the two paths is meaningful enough that I figured the comparison was worth writing up.
Traditional IRA funds can provide great benefit, especially if you use a Qualified Charitable Distribution, or QCD. For 2026, an individual can send up to $111,000 a year directly from a Traditional IRA to a qualified 501(c)(3). The annual limit is indexed for inflation, so it typically nudges up a bit each year. The distribution is excluded from taxable income, so by using this someone could potentially satisfy their annual Required Minimum Distribution with zero tax on that distribution. There is no lifetime cap on regular QCDs. You can use the annual limit every year for as long as the IRA holds money. Eligibility starts at age 70½. Run it for several years and you can clear a fairly large balance without owing a dollar of tax on the way out.
If you Roth-convert those same dollars first, you are paying tax to set up a tax shelter for money that was about to leave the system tax-free anyway.
The compounding cost of conversions
For the comparison, assume an 8% annual return on the IRA.
The Roth path practically requires staggered partial conversions across the five years between 65 and 70½. The IRS does not actually cap conversions. You are legally permitted to convert all $500,000 in a single year. But doing so would launch a 65-year-old into the top federal brackets. So in practice the conversions get spread out, and each one creates a tax bill. For a single retiree converting somewhere in the range of $80,000 to $150,000 in a year on top of typical retirement income, the federal tax on each converted block usually lands in the neighborhood of 15% to 24%, depending on bracket and how aggressively you convert. The cleanest place to pay that bill from is the IRA itself, so the principal that is supposed to be compounding gets a haircut every year on the way to 70½.
The Traditional path requires nothing. No conversions, no annual tax bills, no paperwork. $500,000 at 8% for five years grows to roughly $734,664, untouched.
At 70½ the client begins running $111,000 a year through QCDs directly to the chosen charities. The tax bill on those distributions is zero, the charity receives 100 cents on the dollar, and whatever is still inside the IRA continues to compound. The Traditional path delivers more to charity for a simple reason. Undiluted principal compounds harder.
What happens if the client dies before the money is fully distributed
It is worth considering the implications if the client passes away before all the charitable money has been distributed.
If they took the Roth path, the conversion taxes already paid are gone. They do not come back. The pool left behind is smaller than it would have been.
If they left the money in the Traditional IRA and named the charities as the primary beneficiaries on the account, whatever balance remains transfers directly to those charities, including any compounding that has happened along the way. Charities are tax-exempt, so they receive it cleanly. The Traditional path holds up whether the entire balance gets distributed during the client’s lifetime or whether some of it transfers at death.
A couple of rules worth knowing
The SECURE Act 2.0, enacted in December 2022, pushed Required Minimum Distributions out to age 75 for anyone born in 1960 or later. QCD eligibility, however, still starts at 70½. That gives you a roughly five-year head start where you can draw the IRA down through QCDs before any forced taxable distribution kicks in. And once RMDs do begin, QCDs can be used to satisfy them, so the required distribution does not have to create a tax bill either.
QCDs generally cannot be routed through a traditional Donor-Advised Fund. There are some narrow exceptions involving split-interest vehicles and certain community foundation funds, but in most cases the money needs to go directly to the operating charity.
Bottom line
If the money is going to charity, a Traditional IRA is not a tax problem. Roth conversions can make sense in some scenarios, but earmarked charitable IRA money is not one of them. Let it grow, wait for 70½, run it out through QCDs, and name the charities as beneficiaries to handle whatever is left. That is the basic strategy.
Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice – please speak with your advisor about your particular situation.
