Questions on Roth Conversions

Karen Krupka · 2024-01-22T21:07:54Z

We have been using Pralana for a few years now which has given us some great insights for our plans. As we continue to plan, one item which we do not understand is the best scenario amount of Roth conversions for with our numbers and goals. When we use Pralana for the Roth conversions we always get a plan that has us converting to a higher % of marginal taxes than what will occur in all of the post Roth conversions years. This is also seen in the "effective" tax report columns as well as the “marginal tax” report columns. This situation occurs when we do manual Roth conversions with Pralana as well as when we use the optimize feature for Roth conversions. Some inputs from our runs… we pay our Roth conversions taxes from taxable accounts we set these runs for zero inflation we do not spend any Roth funds (saved for heirs) the results are the same/similar with very conservative returns up thru more historical returns Questions …. In every article we read and every financial site we visit it is stated that Roth conversions are only valuable when the conversion tax rates are more or less equal to the converted tax rates, but never higher. Pralana is calling for us to convert at a higher tax rate, which leaves the converted amount at a much lower tax rate. Why would that be? The metric we use is spendable dollars (not taxes) and we see larger spendable dollars with Roth conversions at the portfolio end. Even with higher Roth conversion marginal and effective tax rates there is an increase in spendable dollars so how can this happen? Are there any articles or places to read where they talk about making Roth conversions at higher marginal rates pay off?

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Bob James

(@bo3b)

Trusted Member Customer

Joined: 4 years ago

Posts: 62

June 21, 2025 5:28 am

@pizzaman Video reference mark 2:24 - Standard deduction of $25,100..?

So the standard deduction right now is $25,100 for a single person, but you get an extra $1,700 once you’re over 65.

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Pizza Man

(@pizzaman)

Prominent Member Customer

Joined: 5 years ago

Posts: 639

June 21, 2025 1:09 pm

That video was recorded in 2022 and some of her numbers are incorrect, good catch.

For the tax year 2025, the standard deduction is $30,000 for married couples filing jointly, $22,500 for heads of households, and $15,000 for single taxpayers and married individuals filing separately. For 2025, the additional standard deduction amount for the aged or the blind is $1,600.

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