Three planning questions you may be asking now

What are my options for my IRA and 401(k)?

Periods of transition—leaving an employer, retiring or beginning a “decumulation” plan—often prompt clients to reconsider their employer-sponsored retirement accounts. Often, they decide to either keep those assets in the employer plan or roll them over into an IRA.

Keeping assets in a 401(k) can be beneficial for those who want to take advantage of options such as the “rule of 55,” which allows penalty-free withdrawals if you separate from service at age 55 or older. It may also be worth delaying a rollover if you want to keep pre-tax dollars out of a Traditional IRA to help avoid the pro-rata rule and maintain flexibility for future backdoor Roth conversions from non-deductible IRA contributions.

Relative to a 401(k) account, a Rollover IRA offers investment flexibility, consolidation of assets and simplified management. It also opens the door to converting traditional retirement assets into a Roth IRA, a strategy that can significantly enhance long-term tax efficiency. While some employers allow you to convert a traditional 401(k) account directly in-plan into a Roth 401(k), many individuals first convert their 401(k) assets into a Rollover IRA and then shift into a Roth IRA.

The tax benefits of a Roth conversion are especially notable in years when your income is lower or if you anticipate higher future tax rates. The conversion triggers a taxable event, but future growth and withdrawals are tax-free. In addition, Roth IRAs do not mandate required minimum distributions, and thus offer greater flexibility. Finally, remember that a Roth conversion is irrevocable—the decision cannot be undone.

We recommend paying the taxes due upon conversion with assets held outside the IRA to preserve the value of your retirement account. In deciding whether to make a Roth conversion, you should take into account:

• Your age (in particular, how many years until you must take required minimum distributions (RMDs) from your IRA, generally at age 73)
•  Life expectancy
• Current and future tax rates
• Intended beneficiaries

Your J.P. Morgan team can help you analyze whether a Roth conversion makes sense for you. More broadly, our Well-Prepared Retiree can help you craft a flexible, personalized retirement strategy that evolves with your life, your assets and your preferences.

What are the benefits of a Donor-Advised Fund (DAF)?

DAFs are a type of charitable giving vehicle that offer a strategic way to pre-fund years of giving while allowing you time to select the organizations to support. As donors shift to more structured philanthropy, DAFs are one of the easiest and most efficient ways to donate.

Establishing a DAF gives you the benefits of:

• Immediate tax deductions for charitable contributions
• Potential tax-free growth within the fund
• Flexibility to recommend grants over time
• Low costs to set up and manage
• Option to remain anonymous

Recent tax law changes may make establishing a DAF even more attractive, particularly by allowing donors to "stack" contributions into a single year. Doing so can help ensure that gifts exceed the new charitable deduction floor equal to 0.5% of adjusted gross income (AGI), maximizing the available tax deduction.

Consider someone with an AGI of $1 million each year who donates $6,000 annually for three years versus $18,000 in one year.

In this scenario, consolidating three years of planned donations into a single year can increase the donor’s deductible charitable contribution without changing their total gift. Contributing to a DAF and then directing grants over time allows donors to maintain their preferred pace of giving while potentially increasing the tax efficiency of their gifts.

Generally, the most efficient type of asset to donate is appreciated publicly traded stock held long term. With those gifts, not only would the taxpayer receive an income tax charitable deduction based on the fair market value of the donated asset, but he or she would also not have to pay capital gains tax on that asset’s unrealized appreciation.

As you consider this strategy, make sure to review your wealth plan and cash flow needs to be certain it aligns with your full financial picture.

We can help

Your Private Bank Advisor, working closely with specialists in J.P. Morgan’s Morgan Private Advisory practice and your tax advisors, can help you make strategic planning and investment decisions. To learn more about how we tailor planning strategies to best address your personal situation, speak with your J.P. Morgan team.