Hi - new user here.
The Roth conversion optimizer appears to maximize the end-of-life Total Savings. Is this a simple sum of your Regular, TD, and Roth Savings? Unfortunately, the IRA savings still will be taxed at the to the heirs over a distribution period of ten years. Is there a way to penalize the size of the IRA and end-of-life, vs the size of the Roth account? All my calculations with high growth estimates end up with large IRA balances, and very small Roth values.
For example, is it better to have a Estate with a 10 Million IRA, or a 6 Million Roth? If a single heir is receiving the IRA, that would be a 1 Million/year income, which would be taxed above 50% in most states, resulting in a worse outcome.
Thank you
@exsanchez You can penalize the TD balance by looking at the total savings balance in terms of Effective Dollars, where the TD balance is derated based on the effective tax rate specified on the Financial Assets > Management page. The specific field is called "Tax Rate for Converting Absolute Dollars to Effective Dollars". Incidentally, Roth conversions are optimized based on maximizing effective dollars.
Stuart
Thank you @smatthews51 that was very useful. The current Federal Exception on Estate tax of 13.61 million is scheduled to expire at the end of 2025. Optimistically, the new exception will be in the order of ~7 million. Is there a way to penalize the Effective dollars to properly account for the 40% expected Estate tax on balances above 7 million after 2025? I guess it's not clear to me if IRAs are inherited and will be subject to RMDs to my heirs, are they doubly taxed by this initial 40% Estate tax for balances above 7 million. This consideration could heavily tilt my efforts to convert every dollar in my IRAs to Roth, to reduce the total Estate taxes. Thank you!
@exsanchez I believe that any IRAs you leave to your heirs will become inherited IRAs and thus subject to RMDs according to the rules for inherited IRAs. PRC only contains the one control for Effective dollars (on the FA Mgmt page) and it only has one setting that cannot be varied over time. There is no other mechanism to penalize your account balances.
Stuart
PRC optimizes saving for end of life. That is the goal of many people. However, some (many?) would like to optimize overall saving that includes inherited Taxable, IRA and Roth accounts. It will affect Asset Allocation/Location, Roth conversion and other decisions. If PRC one day will add this option, it will require estimation of the heirs’ future tax rates.
@exsanchez You can add a "penalty" as a miscellaneous expense in the year you have forecast you will pass (actually perhaps the year prior, be careful because if you're married and have the % reduction in expenses and you're the first spouse to pass, this will be prorated down to reflect that), or perhaps even mark it as a QCD if it's coming out of an IRA so that it's not taxed as a withdrawal.
