From IRS:
"Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts."
I assuming there is no way to get Pralana to not take RMDs on Roth portion of 401K? If not, is this planned for future releases. If there is, could you explain how to do this?
Thank you. Pralana is a awesome tool.
Link to IRS path.
@lmolino There's no mixing on Roth and non-Roth accounts in Pralana. It models tax-deferred accounts (which have RMDs) and Roth accounts (which do not have RMDs) but there's no such thing as a portion of a 401K that's designated and treated as a Roth account within the Pralana model.
Stuart
Thanks for the reply. I guess I don't understand the point of the "After Tax Contribution" cell for tax deferred accounts under the Financial Assets>Initialization tab.
Regards,
Lou
@lmolino It's possible to make after-tax contributions to a 401K account up to some level. You don't get any tax deduction for those contributions but they grow untaxed until withdrawn. So, that's different than a Roth account.
Stuart
I think this after-tax money in a 401k is what I am talking about. I called this a Roth component of a 401k because that is what my employer calls it. See link:
https://www.investopedia.com/terms/r/roth401k.asp
This is also I believe what the IRS is discussing that I point to in my original post related to RMDs. I believe the IRS is indicating that there is no RMD for this after-tax 401k contribution. I assume that since this is a new change to the tax law that Pralana does not account for this. Is this a planned future feature. At this point, I assume the best way to model this is to treat this after-tax money in the 401k as a separate Roth account.
@lmolino Perhaps I'm misunderstanding your OP situation/question - You contribute to a 401(k) and PART of that balance is Roth, for instance $100k total 401(k) of which a portion is $20k Roth.
If so, why not simply divide the 401(k) into separate PRC accounts within the "Initialization of Accounts" table? $80k ($100k total - $20k Roth) as "Louis Tax-Deferred Accounts" line item (typical IRA subject to RMDs) and $20k as "Roth Accounts" line item (exempt from RMDs)?
Update as necessary pending 401(k) contributions and IRA/Roth portion changes.
Would this work?
Thank you for taking the time to reply. Yes, I think your suggestion of creating a separate Roth account for the Roth 401k portion would work, almost. I have in fact tried this as a work around. One problem with this approach is that I am using the Mode 2 asset allocation method. Under this method you set and overall asset allocation and then individual asset allocations for tax-deferred accounts as a group and Roth accounts as a group. I have different asset allocations for my tax-deferred and Roth accounts. So, under the method you suggest, the Roth 401k account that I create will have the same allocation as all my Roth accounts, when in actuality it is really sitting in my tax-deferred account and should have the tax-deferred asset allocation. I guess I could go back to Mode 1, where I think I can tailor the asset allocation of each account. I will check that.
Thanks again for the suggestion.
Lou.
