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Roth Conversions & Optimizations

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(@hines202)
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Joined: 3 years ago
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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.


   
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(@hines202)
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Joined: 3 years ago
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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.


   
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(@smatthews51)
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Joined: 4 years ago
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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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(@ricke)
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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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(@smatthews51)
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Joined: 4 years ago
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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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 ash
(@ashit_patelyahoo-com)
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Hi @smatthews51, I entered the same income (same amounts, same start year for retirement) and expenses for the 3 scenarios before trying "Plan Roth conversions". I also used the same inputs for the 3 scenarios (same start year, tax brackets, and number of years). However, the optimization shows different results for the 3 scenarios, even for the baseline. The only identical value is the start point. Consequently, I am at a loss as to why the 3 scenarios are showing different results.


   
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(@smatthews51)
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@ashit_patelyahoo-com I'm sorry but I cannot address this without an export file. Please email (to mail@pralanaconsulting.com) me an export file that exhibits this problem and I'll be happy to investigate. There's likely some difference between the scenarios that you're not aware of.

This post was modified 1 year ago by Stuart Matthews

   
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(@hines202)
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Joined: 3 years ago
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Topic starter  

@ashit_patelyahoo-com I'd carefully comb down through every page and tab with a sharp eye. I'm willing to bet there are differences between the scenarios somewhere. If you believe they're identical, just use the global copy to copy from scenario 1 to 2, then from 1 to 3. Make sure you're on the latest version of PRC 2022, which is v3.3.


   
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