@ricke Richard - In your experience, is it common to not see a Roth begin to pay off until much later? Not sure I'm setting it up correctly but every time I optimize, I don't see a net benefit begin until I'm in my late 80"s (technically a few years past my planned end of life). For those who are planning to leave to heirs that may be fine, but in our case (no heirs), it seems somewhat pointless.
See attached simulation. I changed my wife to being retired and ran this small conversion with no limit on LTCG and IRMAA. Still getting negative results, which makes no sense to me given that I have myself passing in 5 years and thus future RMD's will be in the higher single bracket for my wife...
You are in a tax bracket and have enough assets in tax deferred that I would think Roth Conversions make some sense, particularly before you are 63 (when your AGI starts being used to determine your Medicare costs via IRMAA).
What did you enter for the Financial Assets - Management - Effective Tax Rate for Converting Absolute Dollars to Effective Dollars? Since you are in the 25%-28% bracket throughout, I would put it in that range in case you or your wife need the money.
A couple other experiments to try:
1)First, try setting the LTCG bracket to no LTCG tax in that first year. There is an effective 27% marginal rate in the range where LTCG taxes are phased in. A dollar of Roth Conversions there are taxed at 12% ordinary income and add to your AGI, so that same $ also pushes a $ of capital gains to be taxed at 15%.
2)The next test I can think of would be to change the first year to the top of the 22% bracket (us No Limit for LTCG tax). Depending on the amount of your LTCGs, it may be profitable to push through the LTCG phase-in to take advantage of the 22% bracket. If that gives you an improvement, try the 24% bracket.
Looks like I sort of replied with my response to @wtbivings . If it looks like it Roth Conversions are "paying out" late in life only, it is likely because you are not assigning a value to the taxes you will have to pay when you withdraw money beyond your plan from your IRA or are looking at "Absolute $" on the Roth Conversions tab. On the Financial Assets - Management tab, the field "Effective Tax Rate for Converting Absolute Dollars to Effective Dollars" allows you to input a tax rate to apply to IRA balance to put it on a fair comparison basis with a Roth.
If you are planning to make QCDs and intend to give your t-IRA to charity or expect that the residual IRA will be used for tax deductible long term care, then maybe you can justify a low value for that. But if you happen to need the money for other reasons beyond your plan or if you leave it to your kids so they have to take it out in 10 years on top of their own income, then it will be taxed and perhaps quite heavily.
@ricke As it stands today much of our TIRA dollars are planned as QCD's for charities and to offset RMD's (we have no heirs). Despite this being the plan, I'd still like to rule out any benefit (or not) of Roth conversions just so I know what we'd potentially be leaving on the table by foregoing them. If the ultimate $ benefit is only a small amount that doesn't materialize until I'm gone and my wife is 90, I'll feel better taking a pass on it.
If you are giving the bulk of the money to charity, then Roth Conversions can still have a long, slow payout as they reduce your tax on RMDs and reduce the tax drag you experience in taxable. Meanwhile, if you pass before that far future, then the charity would come out behind because you prepaid the taxes with the Roth Conversion, whereas they would not have had to pay those taxes. So it sounds like you ran Pralana correctly - Roth Conversions probably don't help in your situation much and might hurt your charities.
@ricke I suppose it would be easy enough to delete all our QCD's from Expenses and rerun the Roth analysis to see how it changes.
