I'm new to Pralana Online but already appreciating its power!
I'm attempting to model Roth Conversions that benefit my partner and I for our lifetimes, while leaving only tax deferred assets to charity.
I noticed that when I enable Roth conversions, my preferred withdrawal order is overridden, putting Roth after tax deferred. I have it set to the younger spouse's deferred account last, Roth preceding it.
To mitigate this, I set some standard withdrawals from Roth for things like LTC. This avoids huge tax spikes and uses up much of the Roth account using very conservative assumptions. If there's more growth, this strategy only goes so far.
My effective tax rate is set to 20% to ensure accuracy while we're alive and spending. I saw a recommendation to set this to 0% if proceeds will go to charity -- but wouldn't this cause inaccuracies in the modeling for our living years?
Also, are there any other constraints (besides the obvious toggles on the Roth screen) to set to keep recommendations constrained to benefit the living and maximize tax deferred bequests to charity?
FWIW, as I see how our assets are doing come RMD time, QCDs are definitely a strategy we'd employ as well. Otherwise, we'll live our best lives and the charity gets the remainder.
Under Build-Financial Assets-Management-Effective Tax Rate, ensure that is set to zero. That is the tax rate that will be applied to the residual IRA balance and since it goes to charity, zero is what you want. Alternatively, when doing Roth Conversions, look at the Absolute $, not Effective (meaning after-tax) $.
For Long Term Care, make sure that in the years you might need care, that you have enough taxable income so you can use the entire medical deduction. If not, then using enough tax deferred to use up the deduction is getting the money out at fairly low cost.Here, it sounds like you have a large tax deferred balance, so I'm guessing you have plenty of income.
You should be able to run the Withdrawal Order Optimizer to ensure the program agrees with you that you should retain your tax deferred for the end (what you are doing makes sense for you're plan, but you never know).
@ricke Perfect, thank you! I wasn't quite sure how to interpret the instructions for Effective Tax Rate, as it wasn't clear it was for heirs ONLY.
Good point about the medical deduction. I forgot about that since it's never applied to me before. I'll definitely spend time with the Withdrawal Order Optimizer. I was waiting until I have a better solution for handling IBonds before applying its recommendations to my plan, but I think I'll create a scenario to mess around with it now to challenge my thinking. Thanks again!
