The Roth conversion optimizer is Pralana's killer tool for me and why I subscribe to this service, as I'll use it to model a Roth conversion ladder to access retirement funds penalty free prior to age 59 1/2 per https://www.bogleheads.org/wiki/Roth_IRA#Treatment_of_distributions. One of the limitations I've found is there is no apparent way to track the amount of prior contributions and conversions and automatically limit Roth distributions to be less than that total. I have manually worked around this, although it does limit the utility of Pralana's optimizations.
Is factoring prior Roth contributions and conversions into penalty free Roth distributions a feature in the product development pipelines? It would be very useful for those building Roth IRA conversion ladders.
It's not currently a feature to track those five-year clocks, unfortunately. I'm not sure anything out there does it, so it would be fantastic feature. Make sure to go into the feature voting within the tool and ask for it. Use your votes for that.
Something else I just asked for is some way to assume Roth conversions are done at the end of the year. For example, I have a client with no Roth balance, but the withdrawal optimizer wants them to take a six figure sum from their Roth this year. It's not there, not possible. The reason the tool thinks it is? It wants them to do a big Roth conversion this year, so I guess it's assuming that happens on the first of January and the money is there to spend. Roth conversions usually happen at the end of the year. I see this quite a bit.
I suppose the program means that the client should withdraw from the IRA at up to whatever the recommended bracket is - spend whatever is needed for spending/taxes and do a Roth Conversion for the rest. The optimizer only looks at ordinary tax brackets, so it can't find that perfect conversion amount in the search, it can only find it by difference.
@ricke Yes, that's how I explain it to clients. Perhaps an enhancement would be to make any portion of that optimized Roth conversion needed for that first/current year's expenses a withdrawal, and designate the rest as a conversion.
I'll bet that's more than a little bit of programming though. It requires setting up a field that has the preliminary Roth conversion amount (which forces a certain IRA withdrawal amount), then applying a test to that to come up with the displayed Roth Conversion amount vs. withdrawal from the IRA. Trouble is that when planning the program, you don't think of the need for those extra preliminary fields, so creating them after the fact requires disentangling all the places you used the result that is now just a preliminary result.
