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Roth Conversions & Optimizations

 

Bill Hines, Retirement Planner
(@hines202)
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When I do an analysis, I'm pretty sure sometimes Roth conversions show up in the tabular data. Is that something that's done and added in as part of the analysis? If so, how are those different from doing an Optimize on the Plan Roth Conversions tab? I'll have to do more checking, but I think I've seen the Optimize change what was there after doing a regular analysis. It's possible that what was originally in the tab was a leftover from a previous Optimize.

Bill Hines
Financial Counselor/Retirement Planner
Money Coach Group, Inc
https://moneycoachgroup.com
bill@moneycoachgroup.com


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Bill Hines, Retirement Planner
(@hines202)
Eminent MemberCustomer
Joined: 3 months ago
Posts: 45
Bill Hines, Retirement Planner - FacebookBill Hines, Retirement Planner - Twitter
Topic starter  

I think the best practice is to go to the Plan Roth Conversions tab, set all buttons (including spouse) to No Conversions planned, then run Monte Carlo and historical analysis to get a baseline. Then go to the Plan Roth Conversions tab and do an Optimize.

But I just did that, and it came back with "Roth optimization yields better results tahn doing no conversion based on both ABSOLUTE and EFFECTIVE savings", but when I clear that dialog box the message says that the WHAT IF analysis shows worse results for effective ($8,633) and absolute ($9,491). Seems to conflict the earlier message?

I do see two small conversions then in the tabular data, $7,765 for 2022 and $1,109 for 2024.

Bill Hines
Financial Counselor/Retirement Planner
Money Coach Group, Inc
https://moneycoachgroup.com
bill@moneycoachgroup.com


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Stuart Matthews
(@smatthews51)
MemberAdmin
Joined: 7 months ago
Posts: 125
 

Roth conversions will appear in the tabular projections anytime they're enabled on the Plan Roth Conversions page, with or without the optimization. Likewise, they're always included in the analysis (fixed rate, MC and historical) when enabled on the Plan Roth Conversions page. When you do the Roth optimization, the PRC algorithm first creates a baseline with no conversions for comparison purposes, so it's not really necessary to do that yourself; however, I think it DOES make sense for you to do that if you're evaluating manual settings for the conversions.

Regarding a conflict between the post-optimization message and the actual results being presented, I'd appreciate an export file if possible so that I can evaluate that case for a possible error. Thanks.


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Richard Eaton
(@ricke)
New MemberCustomer
Joined: 2 months ago
Posts: 1
 

A key part of optimizing Roth conversions is the effect on heirs and that doesn't seem covered much at all. While this is clearly not an inheritance program, it seems like a couple modifications could give a better view of the effect of Roth conversions. Could you consider adding a line in the projections for the estate, making a couple of changes from just using the last year?

1. The "effective $" concept doesn't really work for the taxable account upon death, since no capital gains will be owed. Seems like absolute $ are more relevant for that account.

2. The use of the "effective $" concept for the tax deferred money in the estate doesn't really work as the tax rate of the heirs may have nothing to do with your tax rate. Maybe the user could enter their own estimate of the tax rate of their heirs in each scenario so the program wouldn't have to do a lot more work?


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Stuart Matthews
(@smatthews51)
MemberAdmin
Joined: 7 months ago
Posts: 125
 

Richard,

You're correct, the effective $ concept doesn't really work for the taxable account and, indeed, PRC assumes that effective $ = absolute $ for that account.

Regarding the tax-deferred account, I think your suggestion makes sense and I'm adding that to the enhancement list for the 2022 product. Thanks!


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