To replicate
Step 1: Manually set all years to “YOU HAVE PRIORITY” and verify the conversion amounts make sense.
Step 2: Run a MC analysis on the scenario
Step 3: Verify that the baseline parameters still match the manually entered parameters
Step 4: Run the Roth optimizer and observe that new conversion amounts have been suggested and Acct. Priorities in the upper parameters are still set to “YOU HAVE PRIORITY” but all BASELINE PARAMETERS have been set to “NO CONVERSION”
This means the REVERT TO SAVED BASELINE wipes out all conversion amounts and each year has to be manually set to “YOU HAVE PRIORITY” again or copied from S1
Is this how its supposed to work?
Thanks!
-WTS-
"No Conversion" is one of the selections in the pull-down menu in the Priority field and is selected automatically by the optimizer for the years beyond the specified conversion period. So, with that said, the only thing the Roth optimizer does is attempt to determine the optimum marginal tax bracket for limiting Roth conversions each year with the long-term goal to maximize lifetime savings. It never changes who has priority or any of the other parameters (max IRMAA bracket or FPL multiple) other than what I said above about the "No Conversion". If the optimizer runs and no conversions are being performed (according to the table on the right), that means that the tool has determined that you're better off in the long run by not doing any conversions. Reverting to the saved baseline copies the parameter settings from the table on the lower left to the table on the upper left. I think the issue that you're seeing is that the optimizer starts by running a Monte Carlo analysis to ensure a baseline is in place for comparison purposes, and that puts those "No conversion" settings into the baseline, thus overwriting your original settings.
Sorry about posting this in the wrong forum. The site timed out the first two times I tried in the "errors and bugs?" section.
What you described makes sense but its not what's happening. All the "acct priority" values in the lower (bottom) left are being set to "NO CONVERSION" by the optimizer yet the upper right results panel has newly calculated conversion values.
Huh, it saves my baseline parameters correctly. If you haven't done so recently, you may want to Export your case, download the most recent version and Import just to make sure this isn't some older bug that's already been fixed.
I believe it's likely you can find a better answer yourself than the optimizer can, since as Stuart said, the only parameter it searches is the ordinary income tax bracket. This is not surprising as every conversion affects the attractiveness of every other conversion and the tax code has lots of weird things in it (ACA premium credits, TCJA expiration, IRMAA tiers, SS taxation phase-in, LTCG phase-in), some of which use various forms of Modified Adjusted Gross Income instead of taxable income.
Also, an oversight many folks fall into is to start calculations without thinking through their goals and telling the program about them. For instance, if you want to optimize the after tax value for you and your heirs, then enter the heirs’ tax rate on the Financial Assets – Management tab under “Effective tax rate for converting absolute $ to effective $”. If you have kids making big $, that might be a very high tax rate, if you intend to give your IRA to charity, then that tax rate would be 0, so you don't have to enter anything.
Then under the graph on the Analysis-Roth Conversion page, select “Effective $”. Otherwise, the program is going to think there is zero taxes on the residual in your IRA at the end, obviously that would show little value for Roth Conversions.
Good luck, Roths are a complicated topic.
I think the issue that you're seeing is that the optimizer starts by running a Monte Carlo analysis to ensure a baseline is in place for comparison purposes, and that puts those "No conversion" settings into the baseline, thus overwriting your original settings.
Now this make sense. I understand PRC 2023 will retain the pre-optimizer baseline so it can be reverted to?
Thank you!
-WTS-
Always view the multi-year timeline of PRC conversions as a rough roadmap, and do a precise calculation every Nov/Dec that factors in every *real* thing that's happened throughout the year, plus your goals. I had a lot of fun doing that at the end of 2022 with clients, and saved them a boatload of money. Use a tool that will take all the affected parameters into account - ACA premium tax credits, your LTCG bracket, SS taxation, Medicare IRMAA, marginal income tax bracket, etc.
Stuart, Thanks for fixing this in v2.4!
