For many families, a traditional IRA is both a blessing and a tax problem.
Years of diligent saving can create a substantial retirement account, but those same dollars often carry a significant deferred income tax liability. Following the SECURE Act, most non-spouse beneficiaries must withdraw inherited retirement accounts within ten years, accelerating income taxes and reducing the long-term advantages of tax-deferred growth.
As a result, many affluent retirees and their advisors are asking the same question:
Should we focus on converting traditional IRAs to Roth IRAs during life, or should we consider using a Charitable Remainder Trust (CRT) after death?
The answer depends on a family's goals, tax situation, charitable intentions, and desired legacy.
The reality is that these two strategies solve different problems. They are not necessarily competing approaches — and in some cases, they may even complement one another.
Understanding the Core Issue
Traditional retirement accounts contain what estate planners frequently call "pre-tax wealth."
Every dollar inside a traditional IRA has generally never been subjected to income tax. Eventually, either the owner or the beneficiary will pay ordinary income tax on those funds.
Under the SECURE Act, most adult children who inherit a traditional IRA must completely distribute the account within ten years following the owner's death. This often means taking large taxable distributions during their highest earning years.
When evaluating planning opportunities, the central question becomes: Do we want to pay taxes sooner under controlled circumstances, or defer those taxes and manage the distribution process differently?
That question forms the distinction between Roth conversion planning and CRT planning.
Strategy One: Roth Conversions
A Roth conversion involves voluntarily moving assets from a traditional IRA into a Roth IRA.
The converted amount becomes taxable in the year of conversion. Once the tax is paid, however, future earnings generally grow income-tax free, and qualified distributions are received tax-free.
Why Clients Like Roth Conversions
A Roth conversion essentially prepays income tax at today's rates.
Rather than leaving a large taxable retirement account to beneficiaries, the account owner leaves a tax-free asset.
This can create several benefits:
- No future income tax on qualified distributions.
- Tax-free growth after conversion.
- Greater flexibility for beneficiaries.
- Elimination of future required minimum distributions during the owner's lifetime.
- Potential reduction of future taxable estate growth.
For many families, Roth conversions represent a way to transform an asset burdened by future tax obligations into a more efficient inheritance.
Example: Assume Susan is 72 and owns a $3 million traditional IRA. She expects her children to be in higher tax brackets than her own. She also believes federal tax rates may increase in the future. Over several years, Susan systematically converts portions of her IRA during lower-income years. When her children eventually inherit the Roth IRA, they still must comply with the SECURE Act's 10-year distribution requirement, but the distributions themselves may be income-tax free if the applicable Roth rules have been satisfied. In effect, Susan voluntarily pays taxes at today's rates to avoid potentially larger tax liabilities for her family later.
Strategy Two: Charitable Remainder Trusts
A CRT approaches the problem differently.
Instead of paying tax earlier, the strategy seeks to spread taxation over a longer period.
A properly structured CRT can be named as the beneficiary of a retirement account. Upon death, the IRA passes to the trust, which then makes lifetime distributions to individual beneficiaries while preserving a charitable remainder interest.
The result is often a stream of income that can continue for decades instead of forcing beneficiaries into a ten-year liquidation period.
Why Clients Like CRTs
Clients are often attracted to CRTs because they can:
- Create lifetime income for children.
- Reduce the impact of the SECURE Act's accelerated distribution rules.
- Support charitable organizations.
- Potentially preserve more invested capital over time.
- Generate charitable transfer tax benefits.
However, there is an important tradeoff. A CRT requires that a charitable beneficiary ultimately receive the trust remainder. This is not simply a tax strategy. It is also a philanthropic strategy.
Which Strategy Produces More Wealth for Heirs?
For families whose primary objective is maximizing inheritance to children and grandchildren, Roth conversions often have the advantage.
Why?
Because every dollar remaining in the Roth account ultimately belongs to family members.
With a CRT, part of the account is intentionally diverted to charity.
That charitable component is not a flaw — it is the defining characteristic of the strategy — but it does mean that CRTs are generally not designed to maximize family wealth transfer alone. If charity is not an important objective, a CRT may be difficult to justify.
Which Strategy Produces More Tax Efficiency?
The answer depends greatly on circumstances.
- Tax Payment Source: A Roth conversion may work best when the account owner has funds available outside the IRA to pay conversion taxes. A CRT may be attractive when the IRA owner has charitable goals.
- Tax Rate Planning: A Roth conversion may work best when current tax rates are lower than expected future tax rates. A CRT may be attractive when the SECURE Act's 10-year payout window creates significant tax concerns.
- Beneficiary Circumstances: A Roth conversion may work best when beneficiaries are likely to be high-income earners. A CRT may be attractive when beneficiaries may benefit from lifetime income.
- Time Horizon / Account Size: A Roth conversion may work best when the owner expects a long period for future growth. A CRT may be attractive when the retirement account is exceptionally large.
- Legacy Objective: A Roth conversion often fits when the primary goal is tax-efficient family wealth transfer. A CRT fits when the family desires a charitable legacy alongside family support.
Perhaps the Better Question: Why Not Both?
Sophisticated planning often avoids "either/or" thinking. In many cases, the most effective solution may combine multiple strategies.
For example:
- A client might systematically convert portions of a traditional IRA to a Roth IRA during life.
- The remaining traditional IRA could pass to a CRT at death.
- The Roth assets could benefit family members directly.
- The CRT could provide lifetime income and charitable impact.
This approach creates diversification not only among investments, but among tax strategies and legacy objectives as well.
When We Discuss These Strategies with Clients
At Roots Law, we generally begin with goals rather than tax projections. Before discussing trust structures or conversion schedules, we ask questions such as:
- Who are you trying to benefit?
- How important is charitable giving?
- Do you want beneficiaries to receive a lump sum or ongoing income?
- Are you concerned more about taxes, asset protection, family stewardship, or all three?
- What would a successful legacy look like for your family?
Only after those questions are answered does it become possible to identify the appropriate tools.
Sometimes that tool is a Roth conversion.
Sometimes it is a charitable remainder trust.
Sometimes it is a combination of both.
And sometimes the best solution is something entirely different.
The Bottom Line
Neither Roth conversions nor charitable remainder trusts are universally "better."
They are designed to accomplish different objectives.
A Roth conversion generally focuses on creating tax-free assets for heirs and maximizing family wealth transfer.
A charitable remainder trust focuses on converting a taxable inherited retirement account into a long-term income stream while supporting charitable causes and potentially reducing the impact of the SECURE Act's accelerated distribution rules.
The right answer depends on your family's values, goals, tax circumstances, and vision for the legacy you hope to leave behind.
How Roots Law Can Help
Retirement-account planning has become significantly more complex since the SECURE Act. Whether you're considering Roth conversions, charitable planning, trust design, or beneficiary designation reviews, a well-designed strategy can often save substantial taxes while creating a more intentional legacy.
If you have accumulated significant retirement assets and want to explore your options, Roots Law, in cooperation with your tax advisor and financial planner, can help you evaluate the opportunities, understand the tradeoffs, and design a plan that reflects both your financial goals and your family values.
