Sophisticated Roth conversion planning comes down to two things

1. Reducing the amount you have to convert via discounts

2. Creating deductions to pair against the conversions

Investing in private, illiquid assets may qualify for valuation discounts due to a discount for lack of marketability (DLOM) and discount for lack of control (DLOC), as determined by an independent third-party appraisal.

For example:

• You invest $500,000 into a private investment.
• An independent appraisal values your partnership interest at $350,000 because of the applicable discounts.
• If you Roth convert at that point, you've converted $350,000 instead of $500,000, potentially recognizing $150,000 less in taxable income.

As the underlying projects mature and execution risk declines, those valuation discounts may decrease over time. If the investments perform well, future appreciation and distributions can occur tax-free inside the Roth IRA.

The second piece is creating deductions from your taxable assets to help offset the tax cost of the conversion.

Potential strategies include:

• Charitable contributions to a Donor Advised Fund (DAF) or charitable trusts

• Tax-aware hedge funds that may realize deductible losses

• Oil & gas investments with intangible drilling cost (IDC) deductions

• Real estate depreciation
• Long-term rentals if you or your spouse qualify as a Real Estate Professional (REPS)
• Short-term rentals if you don't have REPS

If your IRAs are $5m - $10m+, discounts & deductions are the key to successful Roth conversion planning.