I am planning to retire the month I turn 43 and purchased Pralana Gold to model / optimize around some of the tax complexity that results from early retirement. I've been working with the software for around a week now, so I'm still pretty new to it. Reviewing the tabular projection it seems there are tax rules that are not built into Pralana that I'm hoping I can still model manually and optimize. So how do I do that?
Goals:
1) Optimize withdrawals/conversions from different accounts to support spending in early retirement.
2) Optimize withdrawal rate (lower taxes + higher ACA subsidy => lower expenses) to lower sequence of returns risk in the first 10 years of retirement.
Constraints:
1) The money in my brokerage account probably won't be enough to cover my expenses for 17 years.
2) I have 17 years before I can take penalty free withdrawals from my tax deferred accounts, with exceptions ( https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions).
3) In the first 17 years I can make penalty free withdrawals from Roth IRA/401k contributions, and conversions after 5 years ( https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp#toc-5-year-rule-for-roth-ira-conversions).
4) I'll have 22 years until I'm eligible for Medicare. ACA insurance can fill the gap, so long as I have enough taxable income (high enough %FPL) to qualify for ACA with subsidy (I want to avoid Medicade).
5) I have an HSA investment account that I have saved previous qualified expenses for later tax free withdrawal. Future qualified expenses can be withdrawn as well.
Considerations:
1) I plan to build a Roth IRA conversion ladder to access tax advantaged accounts penalty free until I'm 59.5.
2) The higher my %FPL is in the first 10 years, the more sequence of return risk I add (goal 2). If my %FPL is too low my Roth IRA ladder may not have converted enough penalty free money to last until I'm 59.5 (goal 1).
3) In some years it may be optimal to pay the penalty for withdrawals from my tax deferred accounts (I assume the penalty is already included in Pralana).
Some thoughts on modeling in Pralana:
1) In Financial Assets/Management I could use different Withdrawal Orders in different periods (before 59.5 Regular/Roth/TD, after 59.9 Regular TD/Roth). This wouldn't address constraint 3 however.
2) For HSA withdrawals, I set up scheduled withdrawals to roughly simulate my planned out of pocket health expenses. I also setup a one time scheduled withdrawal to account for saved previous qualified expenses.
@nadasurf I'm going to recommend that you contact an advisor familiar with PRC for assistance with this, such as Bill Hines ("Bill Hines" <bill@emancipare.com>). He's also on this Forum frequently.
Stuart