Pralana reports only 4% of my taxable Qualified Dividends, what am I doing wrong?

@bkfort-fitestyahoo-com

It is a known issue. Please vote (More > Feature Voting > second item) to fix this issue. Thanks.

Gulp. It's December 28.....

Thanks. What precisely is the known issue?

1. Is it impossible to correctly account for steady state income from RegInvAcct dividends for taxes and Roth Conversions?

2. Is it an inability to correctly account for dividend growth on top of portfolio growth?

My question is part of a larger concern. I found the Roth Conversion optimizer changing conversions by 2x to 4x based on what seemed like minor tweaks in Financial Assets->Asset Class Taxation.

@bkfort-fitestyahoo-com

The taxes are entered as % of the nominal growth, not percentage of the assets. So if you entered 8% nominal growth and had 3% qualified dividends, you would enter 3/8=37.5% of the growth will be taxed as qualified dividends. (That is kind of high, a total market fund would be less than 1.2% right now, use last year's 1099 as a guide)

As to the Roth Conversions bouncing around depending on input, the tax code is a complicated beast. Tax drag from dividends can be a big part of the driver for Roth Conversions, so let's get the dividends set up the way Pralana wants first and then post back with some more specifics as to what you are seeing from the Roth Optimizer. I found it helpful to look through the graphs on the Review-Graphical Projections - Tax Projections. For instance, I have used Pralana a long time and until I saw the IRMAA graph, hadn't realized how much IRMAA was dictating the Roth Conversion plan. Others may have a different zone that is driving Pralana, perhaps ACA premium credits, the LTCG tax phase-in, SS benefit taxation, etc.

@bkfort-fitestyahoo-com The known issue is that the dividends are always proportional to the overall account growth. It's not impossible to change this such that dividends generate steady-state income BUT it is not a trivial change and, generally speaking, we are making only minimal changes to the Gold product now that the Online product is available. When Gaby suggested that you vote for this fix, she probably did not realize you were referring to the Gold product because the voting list refers only to Online features. With that said, I see that @ricke has offered some help and that's great. Beyond that, if you'd like me to take a look at why you're seeing so much variation in Roth optimization results, you can email me an export file (to mail@pralanaconsulting.com) and I'll be happy to investigate.

Stuart

@ricke Intriguing.

(Edits follow after reading Stuarts confirmations)

So,

1. Does Pralana always and only assume RIA (RegInvAcct) dividends are re-invested and treated as a nominal component of nominal growth of the RIA?

(I read Stuart's reply. He answered this question.)

2. Dividends as only income is common among retirees, does the preceding mean Pralana cannot correctly model the retiree reality, that dividends do NOT contribute to nominal growth of a portfolio, but are used as income? (Again, Stuart answered.)

Given answeres to the preceding from Stuart, the following questions are even more pertinent:

a) Is it legit to "hack" or model this reality as a type of self-funded annuity and remove these stocks from my RIA?

b) If so, this would mean Pralana cannot optimize use of this "self-funded" annuity for use in paying Roth Conversion taxes. But is there then a way to "hack" or model this also in the Income area since I would like to experiment with liquidations in this "self funded" annuity for paying taxes to optimize Roth Conversions.

Can you please point out where I missed #1 and #2 in the documentation? I am not asking for a defensive reference, but clarity on the unexpected restriction Pralana imposes.

btw Given issue #2 is true, this may partly explain the seemingly oversized reductions in Roth Conversions when I "hacked" Financial Assets->Asset Class Taxation to generate seemingly valid numbers in Tabular Projections->Taxes. By "hacked" I am not being disparaging. It means I am guessing at black or opaque assumptions and so am in unchartered waters where the documentation doesn't provide arithmetic clarity.

Regarding actual numbers:

Inflation 3%

Dividends 3%

real ROR for stocks 3%

So, if I understand, I should enter 3/6 = 50%.

If so, this yielded 2/3 of the actual dividend income.

I had to enter 75% to get the actual dividend income.

What is the actual arithmetic behind getting from Financial Assets->Asset Class Taxation->Growth Taxed Annualy as Qualified Dividends to Tabular Projects->Taxes->Qualified Dividends?

I would like to see this using unambiguous variables. On the surface, it should be .50 * .06 * stock value. This is close. But it is not what shows up in TabProg->Taxes->QualDiv.

Many thanks for your replies.

@smatthews51 So, it sounds like Online is the future. What features are currrently in Gold that are not online? What about 2026? What is the end-of-life for Gold? Thx.

@bkfort-fitestyahoo-com PRC2025 has these features (which PRC has had for quite a few years) that have yet to be implemented in Pralana Online: mid-year account growth, customized tabular projections, term insurance recommendations and charitable trusts. PRC2026 will (tentatively) have same-year tax calculations on unscheduled withdrawals, variable start date (doesn't always have to be January 1), and dynamic calculation of pensions as a function of retirement date. There is no planned end of life for Gold, but annual changes will generally be small and normally associated with tax law changes only. This year is an exception because I wanted to create a truth model for Charlie to be able to reference as he develops these same features in Pralana Online (that's the model we used during its initial development and it was very beneficial).

Stuart

Posted by: @bkfort-fitestyahoo-com

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Regarding actual numbers:

Inflation 3%

Dividends 3%

real ROR for stocks 3%

So, if I understand, I should enter 3/6 = 50%.

If so, this yielded 2/3 of the actual dividend income.

I had to enter 75% to get the actual dividend income.

What is the actual arithmetic behind getting from Financial Assets->Asset Class Taxation->Growth Taxed Annualy as Qualified Dividends to Tabular Projects->Taxes->Qualified Dividends?

I would like to see this using unambiguous variables. On the surface, it should be .50 * .06 * stock value. This is close. But it is not what shows up in TabProg->Taxes->QualDiv.

Many thanks for your replies.

 

I and others use the math as I explained it and it's always been OK. Note that the percentage is based on your assumed growth of the asset, not any actual performance. I don't have a specific guess as to where your numbers went off track. The link to the manual is below and it seems pretty clear to me.

The manual also explains that they are working on a more natural way, which would use dividends as a % of assets so folks can enter the dividend yield the way that funds report them instead of having to go through the non-intuitive math to apportion the gain.

Thanks. Big Help. And I now see why it is clear to you. I've used nothing but Pralana Gold (Excel) and the Gold PDF manual. So, you've sold me on the Online product, though it is too late to rectify 2025 mishaps. I bought Gold this year under the impression Online was still catching up.

I also validated your arithmetic prediction.

Gold Mode 2 allows an overall allocation between stocks and bonds, along with account specific. I can have 99% stocks overall, and 1% stocks in every account. Rather than flag a warning or error Pralana does some arithmetic alchemy to make this "work". To wit:

"strives to achieve both the overall allocation and the target asset locations but inevitably it will have to deviate from the target values at some point to maintain the desired overall allocations." p46

Once I put a stop to the alchemy, making every account === overall, wala!

So, again. Thank-you for the dialectic.