There must be something very basic that I am getting wrong. Regardless of what I do, I can't get Pralana to recommend any Roth conversions. Even if I set a limit of the highest marginal rate.
I'm really at a loss at this point and could use some direction.
Can you post a screen snip of your Roth Conversion Parameters you set before running it?
Since Roth Conversions work for others, I presume there is a setting that will seem very basic in hindsight that you are not inputting correctly. So some basic questions for you.
Are Roth Conversions enabled?
Does your MAGI before Roth Conversions exceed the IRMAA tier you set?
Is there money in the IRA?
Have you tried getting rid of the IRMAA tier limit?
Have you run the Roth Optimizer?
@humsby First, disable roth conversions, then run your Monte Carlo analysis to establish a baseline without any conversions. Then, go to the Roth conversions page and let the tool do its work. Remove any extraneous previous entries, and have it start in the current year, 2025. Don't try to outthink it by limiting IRMAA or ACA/FPL, let it figure out for you whether it can save you money, even if you're paying more for health care. Don't try to outthink it.
After you run it, look at the results tab, specifically the graph. Blue line is no conversions, red line is conversions. Is there any benefit? When does the benefit occur, when you're 99 years old? Is it still worthwhile in your view? Look at the numerical ROI results, is a .02% gain worth it? If it says 9%, whoo hoo!
Roth conversions aren't really optimal, mathematically, for everyone. Why would the tool recommend you do big roth conversions and pay lots of money in taxes if you're telling it you're not going to spend the money in your lifetime? You might say, "Well, to give my kids a tax-free inheritance, or protect my spouse from me dying earlier and being in the single taxpayer rate, or protect us both from future tax hikes" Ok well the tool doesn't know about those things (unless of course you indicated big future tax hikes or that one of you will die prematurely). Those are non-mathematical reasons for doing roth conversions.
Example: A client had lots of "inexpensive" (i.e. 15% LTCG rate) money in their taxable brokerage, lots of money already in their Roth accounts and savings, a good balance of asset locations, and weren't anywhere near spending their money in their lifetime based on the spending they laid out. No reason for the tool to want to do any roth conversions. There's enough cheap money to live off, and their tax bill at RMD time wasn't egregious, especially since they want to use that pretax/IRA money for long-term care expenses and charitable giving through QCDs.
@hines202 Your reply above was extremely helpful to me. As you know, Pralana has so many levers / variables / ways of looking at things. I was getting myself quite confused on the topic of Roth conversions, and was trying to model those at the same time as trying to figure out if I was in good overall shape. Your reply helped me realize that this was the wrong approach. I set up 3 scenarios, and used the same AA for all accounts, using Mode 2. I used your reply to run a baseline, and then tested 3 questions -- stop Roths after this year, allow Pralana to optimize with no limits, and set IRMAA limits and then allow Pralana to optimize.
I wasn't surprised to see that Roth conversions were definitely beneficial. What did surprise me was that using IRMAA limits was only slightly less beneficial than unlimited Roth conversions, and way easier to accept (several 6 figure Roth conversions vs a series of about $70K per year).
I still don't love that my taxable account runs out at a certain point, but I think that is just psychological. I would still follow my plan of having 2 years of expenses in it, I think, so would just need to fine tune that as it gets closer. That happens around age 70, and the IRA runs out around age 83, based on the Rates of Return I have put in for now (real, stocks 4%, bonds 2%, money markets 1%).
It also means I pay no taxes after early 80's, but I guess the main goal is EOLSV, not necessarily simply smoothing taxes. Does this make sense?
After this I guess I would re-rerun the same 3 scenarios, but with different assumptions about tax rates. Right now I have entered TCJA tax cuts expiring in 2026. I suppose I would model a couple of different years. Once Congress does or doesn't do something then we would know more, I supposed.
I'd appreciate any feedback on this, and I apologize to @Humsby for piggy-backing on this thread. I hope that's ok.
@debrazebra I still don't love that my taxable account runs out at a certain point, but I think that is just psychological.
I would agree that it's psychological. My taxable account is really small compared to the rest of my retirement accounts. That's because I used most of it to pay the taxes on a big Roth conversion I did back in 2020 during a big drop in the stock market during Covid-19. So now I just use my Roth account as my emergency money for living expenses. Meaning I have my emergency living expenses in a money market fund within the Roth.
