I'm a fairly new user, and I'm very confused about how to look at Roth conversion possibilities, especially as regards Mode 1 and Mode 2. I vaguely understand that if I tell PRC that my Roth account is 100% stocks, then it will be heavily biased towards Roth conversions. But I'm confused between which mode to use and how to set either of them up.
My goal for the moment is to set up PRC in the most conservative way, so that Roth's are less heavily preferred. I think that will accomplish my real life goal for modelling. I'm assuming PRC is striving for maximum EOLSV, not only lower taxes, although to me they would go hand in hand.
In real life, I am 40/60 stocks/bonds, with my order of preference when I allocate Roth (100%), taxable (currently 25/75, but being spent down), and IRA (whatever works). I'm a 66 year old widow, on SS survivor benefits until age 70, and currently in the 22% bracket. 60% of my assets are in the IRA. If I do no Roth conversions, other tools point to high IRMAA and more taxes paid for sure, with a projected RMD of $46K. Common sense would say to convert well into the 22% bracket, but below the 2nd IRMAA increase ) at least until 70, and probably until 72, but PRC is way more aggressive than that.
Can anyone help my confusion, and tell me a) which mode to use for this purpose and b) how to set that mode up specifically?
Finally, is IRMAA shown anywhere specifically? So far I haven't found it.
Here are my suggestions:
- Use mode-2 for Asset Allocation. Mode-1 is not Asset Allocation, it is Asset Location. Using Mode-1 means that you do not have Asset Allocation enforced in your plan. It may cause you to believe that Roth conversion is more beneficial than it really is.
- Setup mode-2:
- Go to FINANCIAL ASSETS > Management. On the ASSET ALLOCATION MODE select the one that say: User Specific Overall Asset Allocation and Target Asset Location.
- Go to FINANCIAL ASSETS > Asset Classes & Allocations. On the ‘Overall Allocation’ select Stocks 40% and Bonds 60%.
- Use Asset Location methods for the next columns. for example: If possible (no big tax penalty of moving taxable investments), move all your bonds (60% of your assets) to IRA. Put the rest (40% Equity) in Taxable and Roth. The result will be something like: Regular Stocks/Bonds 100/0. TD Stocks/Bonds 0/100. Roth Stocks/Bonds 100/0.
IRMAA is included as part of the Social Security, Medicare and NIIT column on the Tabular Projections > Taxes page. it is not broken out separately. Stuart will consider a separate column in future updates.
I am not a financial advisor so maybe use a professional for Allocation/ Location advice.
Sorry, what you were told was not where IRMAA costs show up.
IRMAA is on the Tabular Projections - Expenses tab, under Medicare Costs. The program only calculates that if, on the Expenses-Healthcare tab, the user clicks the yellow check box that says Auto-Calculate Medicare costs.
Note that Medigap costs and the base cost of part D are not included in that calculation, the user will need to estimate those separately and entered under Insurance Premiums Beyond Calculated Value or Out-of-Pocket Expenses.
What is referred to on SS, Medicare and NIIT column are the 6.2% SS payroll tax, the 1.45% Medicare payroll tax and NIIT taxes on LTCG/qualified dividends for AGIs above $200K single, $250K MFJ.
Thank you, I think I once knew that, and had forgotten
