Hi,
I have been trying to get the drawdown plan set up for retirement in a couple of years. I know that Pralana does not know the contribution portion of the Roth and what can be withdrawn without penalty, so I have pulled out growth and put it in as a fake 529 so only contributions reported on a 5498 are modeled. The contribution balance eligible for penalty free withdrawal is only around 75% of what I would be spending in a year's time. Pralana is doing Roth conversions and then immediately withdrawing them without waiting for the 5 year conversion period.
All my accounts are modeled with simple growth at 5%, so I know that is not playing into Pralana wanting to draw down Roth accounts as a priority.
I'd assumed that Pralana was doing this to draw down some pretty hefty tax deferred account balances to minimize the impact of RMD's later in the plan (ie using Roth balances to increase the "room" in conversion brackets) and paying early withdrawal penalties for the portion of the Roth conversions that are not 5 years old. However, I don't see this reported on the 1040 Schedule 2 Line 8 nor on a 5329 or on a 1099R when I go to confirm this is actually a sound plan (take the penalty and go) compared to living off brokerage for 5 years while setting up a Roth ladder. Does anyone know where the penalties for early withdrawal before 59.5 and less than 5 years old are reported in the tool? Thanks in advance for insight into this!
@rozicrc Hi Ron, Thank you for subscribing.
Pralana does not know the timing of contributions (which may include prior Roth conversions) in your initial Roth balance and also does not track the timing of in-plan contributions, conversions and growth. Thus it does not assess penalties for early withdrawals of conversion and growth amounts from Roth or attempt to handle the various IRS exceptions to the penalties.
In your scenario 1, you are seeing withdrawals from the Roth account from 2031 to 2035 because you have cash shortages and your Roth account is first in the withdrawal priority order during those years. (I do not know if that is because you set it to be that way or ran the Withdrawal Priority optimizer, though I see you did run the optimizer on 12/14.)
You can selectively manage withdrawals to cover cash shortages by using the Scheduled Withdrawal feature which gives you a lot of flexibility to define the timing and amount of withdrawals (and account transfers) from many different accounts.
I hope this answers your question.
Charlie Stone, Pralana
[moved this from the PRC Excel section to the Pralana Online section]
