I just want to make sure I understand the recommended practice correctly.
For a Roth conversion
use mode 2 leaving the overall asset allocation the same
Allow for the changing of allocations in each account to account for the tax efficiency of each asset.
This make sense to me so you can see the effect of the conversion including the tax benefits realized by increasing the Roth account size and placing the higher gain assets in the Roth, the lower gain assets in the IRA and use the taxable for foreign investments and overflow from RMD withdrawals.
None of the tax benefits would be possible without the conversion so you would take credit for them as part of the conversion.
Am I looking at this correctly?
From my two cents, yes, you got it! The only tip I'd add is to run the Withdrawal Order Optimizer afterwards, (maybe even run the Roth optimizer a second time again after doing so) since the changes you make with conversions might change things there. And be sure to look at the graphs to see what year you break even: many times it just ain't worth it. (Bill Hines has some great posts about this.)
@jkandell Thank you, that is what I suspected but want to make sure. My TIRA is large enough that my RMD's would get painful in the future, especially if one of us were to pass significantly before the other. I did run the withdrawal optimizer and my break even point makes it well worth the conversions.
@redvudu Would you please elaborate on your PRC "break even point" analysis process? Thanks...
@bo3b I look at the graph on the Roth conversion chart and where the active line crossed above the base line I called my break even point. At this point you have a positive return moving forward. I made sure I set my base line was actually set with no conversions and ran a Monte Carlo prior to setting it. The results details by year page showed no conversions.
In my case it was between 72 and 73, before that the active line was below the base line.
My taxes are paid from a brokerage account where the stock has a low cost basis but little current growth and a 4% dividend.
Let me know if I missed something.
