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Modeling own designated ROTH Conversions?

 

Mike Martin
(@mikmartn)
Active Member Customer
Joined: 2 months ago
Posts: 5
Topic starter  

Hi,

I am a new user of Pralana and have been extremely impressed with the design and functionality. But, I am stuck at the moment.

Is there a way model my own designated ROTH conversions? For instance, if I want to convert $83k in 2024, $79k in 2025 and $43k in 2026 ?

What I'd really like - is a way to specify a maximum pre/post TCJA brackets of 22/15 or 24/15 (i.e. Tax Bracket Restricted), but the above might be a good workaround for me. Any suggestions are greatly appreciated.

Mike


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Stuart Matthews
(@smatthews51)
Member Admin
Joined: 12 months ago
Posts: 215
 

Mike,

There isn't a way to manually specify annual conversion amounts. You say you'd really like a way to specify a maximum tax bracket and that's exactly what the tax bracket restricted mode does, so I'm probably not understanding what you're saying. Please elaborate on this. Thanks, Stuart.


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Mike Martin
(@mikmartn)
Active Member Customer
Joined: 2 months ago
Posts: 5
Topic starter  

Thanks Stuart,

"...a way to specify a maximum pre/post TCJA brackets of 22/15 or 24/15". (I don't see those as choices in the Maximum Tax Bracket dropdown, hence my curiosity about a workaround)

Mike


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Gary Jordan
(@gbjordan222)
New Member Customer
Joined: 1 month ago
Posts: 1
 

I am stuck on the same issue that Mike brought up. Although I figured out the broader Roth conversion "optimize" button, I'd like to be able to manually specify annual conversions for a couple of years. Ideally, I'd like to say for a given year, make the roth conversion equal to the amount that gets me to the top of the 22% bracket (as an example).


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Stuart Matthews
(@smatthews51)
Member Admin
Joined: 12 months ago
Posts: 215
 

@mikmartn Right, those specific choices aren't available; there are 7 options available for each set of tax laws, and each PRC option includes the most closely matching brackets from each set.


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Stuart Matthews
(@smatthews51)
Member Admin
Joined: 12 months ago
Posts: 215
 

@gbjordan222 Gary, I'll take that into consideration in making revisions for the 2022 model. Regardless, in the current model you can specify the starting year and the limiting tax bracket but you have to specify the portion of the account to convert, and then the tool will get that amount converted in as few years as possible without exceeding the specified bracket.


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Mike Martin
(@mikmartn)
Active Member Customer
Joined: 2 months ago
Posts: 5
Topic starter  

Thanks Stuart,

What I'm struggling with... is that the tax bracket optimization ("Optimize") I am doing - results in the first 4 years having a marginal tax bracket of 22%, while there are 14 years with a 25% marginal bracket.

Wouldn't shifting some of the money that will be taxed at 25% (in later years) to 24% tax in the first several years likely yield better results?

Mike


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Bill Hines, Retirement Planner
(@hines202)
Trusted Member Customer
Joined: 8 months ago
Posts: 60
 

PRC does show you the amount left in your top tax bracket, so you could just use that number to 'top it off' with a Roth conversion at the end of the year when everything is pretty solid and you've verified the buffer with some December tax projections (otherwise, be careful of going right up against it so your last dollars in don't go into that next/higher bracket).

Then, for the start of the new year, simply set the beginning year to the new year, and adjust your starting balances (with the funds now in the Roth and depleted from the traditional) and receive further guidance from PRC for the new and subsequent years. Rinse and repeat 🙂

I know that doesn't provide the type of long range planning/projection some are asking for in this area, but it does update your outlook for subsequent years.

Bill Hines
Investment Advisor/Financial Counselor/Retirement Planner
Emancipare Investment Advisors LLC
https://emancipare.com
bill@emancipare.com


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Stuart Matthews
(@smatthews51)
Member Admin
Joined: 12 months ago
Posts: 215
 

@mikmartn Mike,

Even though I don't have the benefit of seeing your specific data, I'd say the answer is "no". What you're probably seeing is four years at 22% and then 14 years at 25% because of the reversion to pre-TCJA tax laws (and the associated tax brackets) after the first four years. Apparently using the TCJA 24% bracket from the outset yielded worse long-term results. With that said, I'm seriously considering allowing different tax brackets for at least two time periods in the 2022 model and maybe that'll help address your concern here.


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Mike Martin
(@mikmartn)
Active Member Customer
Joined: 2 months ago
Posts: 5
Topic starter  

Thanks Stuart,

Having the ability to model Roth conversions by including a bracket for one or two time periods would be awesome.

Mike


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Mike Martin
(@mikmartn)
Active Member Customer
Joined: 2 months ago
Posts: 5
Topic starter  

@hines202 Thanks Bill, that makes sense. (Although. I'd really like to find out ahead of time if the extra Roth conversion makes sense in the long run)

Thanks for the idea; you got me thinking some more. ?


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Bill Hines, Retirement Planner
(@hines202)
Trusted Member Customer
Joined: 8 months ago
Posts: 60
 

It looks like this all may become moot, if the current headwinds to do away with Roth conversion gain traction! That'll sure speed up some folk' timeline for doing these, including me.

Bill Hines
Investment Advisor/Financial Counselor/Retirement Planner
Emancipare Investment Advisors LLC
https://emancipare.com
bill@emancipare.com


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Robert McFadden
(@rpmcfadden1)
New Member Customer
Joined: 8 months ago
Posts: 1
 

I'm challenged by this problem as well. I'd like to be more precise in topping off the Roth conversion, year by year. The Roth Conversion page seems to overstep the Tax Bracket.

I've used the page Financial Assets / Management/ Scheduled Withdrawal Table to withdraw money to reach the Tax Bracket. It taxes it and puts the balance in the Taxable Account. Perhaps a choice to have it deposited in the Roth account instead might be possible?


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Stuart Matthews
(@smatthews51)
Member Admin
Joined: 12 months ago
Posts: 215
 

@rpmcfadden1 The Roth conversion function is getting another overhaul in the 2022 model of Pralana Gold and will provide more flexibility for users to fine-tune the process. If you have an example where it appears that PRC is overstepping the target tax bracket, I'd appreciate receiving an export file that illustrates this case so I can investigate. Thanks, Stuart.


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