I have a question about modeling SSDI income and information feeding into Roth Conversion analysis. The manual says "
Social Security Disability Modeling
PRC does not specifically model Social Security Disability benefits. If you need to do this, we recommend using one of the Other Income streams and set taxation to Non-taxable. "
If someone is collecting SSDI with an age of say 50 and they know their SSDI is taxed at 85% automatically due to other pension income then it seems to me that a person could just set the taxation to 85% and that would accomplish the first part of the goal. With this would the model go ahead and predict IRMAA brackets beginning at the initial age since the person would be paying the medicare premium? If so wouldn't this information feed into the Roth conversion analysis from the year the person specifies to start Roth conversions?
Thanks!
@majorjdw Your question has caused me to reconsider the advice given in the manual about using one of the Other Income streams and I've just revised the manual to say this:
"...we recommend using two Other Income streams: one to represent the taxable portion of the SSDI stream and another to represent the non-taxable portion of the SSDI stream. Determining how much of your SSDI is taxable and how much is non-taxable is a function of your MAGI and is an exercise you will need to perform outside of PRC. The maximum taxation on any SS income is 85%, so a worst case way to go would be to set Other Income #1 (taxable) to 85% of your SSDI and Other Income #2 (non-taxable) to 15% of your SSDI."
In response to your question, you cannot "set the taxation to 85%" because PRC Gold does automatic tax calculations, so your only option is to specify a given income stream as taxable or non-taxable. Using two other income streams as described above will, I think, model your SSDI; however, PRC Gold does not model Medicare prior to age 65, so the IRMAA question is moot. As a workaround, you would have to manually specify your health insurance premiums prior to age 65. With that said, though, the IRMAA limitations feature of PRC's Roth conversion algorithm would not have any affect prior to age 65.
Stuart
Another is with lack of actual social security modeling appears is that it appears to make the SS optimization much less useful. Without proper modeling, it cannot account for the fact that disability is automatically converted to non-disability as FRA.
I have raised this same issue with the online version, and I still believe this is a fairly simple tweak to the underlying code. Other than being able to begin before age 62, SSDI income is no different than regular SS income. It is taxed in the same way, and is adjusted annually by the same COLA as regular SS.
Implementing this should be no more complicated than adding a toggle similar to the one you have for whether to auto-calculate Medicare premiums. If someone selects the toggle for SSDI and inputs their current benefit and age, the code can then treat it like regular SS income. Taxation would be done correctly, and optimization (I assume the OP has a spouse, so wondering how to optimize when to take regular SS with one already on SSDI) should still work for the second person.
@tloretirenow Due to popular demand, SSDI modeling has been added to the Pralana Online enhancement list.
Stuart
That's great to hear - thanks, Stuart.
