I wanted to make a customized conversion of a tax-deferred IRA to a Roth account, rather than use the Roth Optimization tool. To do this, I used a Scheduled Withdrawal from my IRA (no penalty) of X$ for 2025 and 2026. I then used the Employment income tab to record a X$ contribution in those same years -- but I did not include any wage income in the Employment income tab. The result seems to line up with the tax consequences by adding X$ to my income for those years and bumping up my Roth accounts in Account Balance.
I would welcome any comment or observation on this approach to make sure it is correct.
Please note, to avoid additional income being registered for the conversion years, I put the Roth contribution under the Employer Contribution (with zero income for the year). If I put it as a Personal contribution, the model adds the equivalent income to that year in the bar chart (although it does not appear in the tax forms). I also include a Misc expense for the years of the conversions to offset the automatic cash contribution for the amounts withdrawn. This seems to give a "hack" for a fixed annual Roth conversion.
It would help to have some context to follow your case:
How old are you ?
Are you still working ? Until when (presumed) ?
Earned income during the years you work
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It is an odd (but not unheard of) case to Roth convert the same year that usual work earnings are contributed to Roth. It is unusual because the ordinary earned income typically pushes the cost of the Roth conversion into brackets that make it an unattractive choice a priori, or compared to waiting until e.g. retirement or age 65. I think that in the great majority of cases people will find that if Roth conversion is a good idea for them, it is best done after retirement, before SS benefits are taken, and from 65 when Medicare is used. If Pralana is saying something else, then check your inputs. One exception that occurs to me is a working year with partial unemployment.
Yes, this works. Realize that if you are doing this in future years, that the "personal contributions to Roth accounts" are not indexed for inflation (nor are other employment related contributions).
As Eric pointed out, it is generally in your best interest not to do conversions this way, but rather to convert up to one of the tax thresholds. If converting some at a certain marginal tax cost is good, then converting the maximum you can at that marginal cost is generally better. Manually setting a Roth Conversion amount can also have unintended effects if you use advanced withdrawal methods such as Consumption Smoothing or other variable withdrawal methods as those may also push you above unexpected tax thresholds, (especially if combined with historical or Monte Carlo modeling).
So a manual approach should only be used for a good reason like limited availability of cash coupled with very high unrealized gains if you had to sell assets, where there might be an optimum that Pralana wouldn't find. Other possible scenarios that come to mind are converting only up to the start of SS taxation phase-in, hitting an intermediate ACA FPL or the start of NIIT, which are thresholds that Pralana's selectors don't explore.
