There's probably a way to do this that I'm missing so thought I'd ask.
I've been playing with the Roth conversion optimization and PRC-O gives me a really high recommendation to convert this year. It does make sense because the rationale is to convert to the top of the 24% bracket. But let's say I don't really want to pay that much in taxes this year and choose to convert a smaller number, say $100K. Can I enter this number somewhere as my intended conversion for 2024 and see what it does to the model going forward?
Thanks for any guidance.
Go to Income, pick an employment income stream and enter a value for a personal contribution to a Roth.
Then go to the Scheduled Withdrawal Table under Financial Assets -Management and enter a withdrawal of the same amount from your tax deferred.
Hi Richard - thank you for your suggestion. I just tried entering $100k in the two areas you suggested but it doesn't quite seem to do what I expected. Now, PRC simply tells me that the optimum conversion for 2024 = (Amount suggested before) - $100K. What I was hoping for was sort of a *manual* override feature where PRC would use the number I gave it for 2024 and then project out future years. Ideally, if there is a way to enter the intended Roth conversions manually for multiple years in the spreadsheet, it would be nice.
I didn't explain fully. On the Analysis - Roth Conversions tab, you have to tell it No Conversions for the year in question, otherwise that is over-riding your manual entry.
@ricke Thank you for taking the time to explain all the steps, I'm still at relatively newbie level.
I just tried this and understand the mechanism better now, and the numbers make more sense. This method still feels like a "workaround" more than an official workflow since it's not being classified as a real Roth conversion on the Tabular Projections->Expenses->AGI Detail->Roth conversions.
I'm going to enter a feedback item to provide text boxes in the Roth conversions area under each row. That way, users can compare the effects of what they actually intend to convert versus what the model says is the fully optimized version. I'm probably missing some nuances here but at least Stuart & team can consider it.
Thanks again!
I have the same question. I do not have an income stream to contribute to a Roth. I want to convert from a traditional IRA to a Roth IRA. And, I would like to model conversions for the next few years. And, as the OP said, I want to enter the amounts to convert rather than taking the results of the Roth Analysis screen. How does one do this in PRC? For this year, I could enter the Roth Conversion amount in the Financial Assets Initialization screen and do a withdrawal from the traditional IRA. So far so good. But what about modeling the future years? How does one tell PRC the traditional IRA withdrawals are going into the Roth account?
I'm going to give you more than you may want, but Roth Conversions are affected by everything so it's complicated to do them right.
On Build-Scenario Assumptions-Tax Assumptions, for my own modeling, I've eliminated the Tax Cuts and Jobs Act of 2017 Sunset Year. It seems wildly improbable that that will expire after 2025 as the original law was written.
On Build-Management-Effective Tax Rate, set a tax rate that best represents what either your heirs would have to pay on the residual t-IRA balance or that you would have to pay if you ended up deciding to spend more than your plan. If you plan to give it to charity, then the rate would be zero.
If you hold different allocations in different accounts, go to Build-Advanced Portfolio Modeling-Asset Allocation/Location and select Mode 2. Then go to Portfolio Allocation and enter your overall allocation and go to Account Prioritization and set which accounts should have the most stocks. This is the key differentiator between Pralana and competitors - other programs do not have this and that causes crazy Roth Conversion results.
Next, before insisting on setting your own amounts for conversions, I would start by not being constrained so that you can see how much you are giving up by placing constraints - you may well find your constraints are costing you a lot of money and maybe you should rethink whether they are real constraints or just an inconvenience.
To do that, I would let Pralana do its Roth Conversion optimization, making sure that you don't have any leftover limits like ACA FPL, LTCG taxation or IRMAA tiers. Then I would go to Analyze-Historical Analysis and run that. That tells the program to remember that auto-optimized case as a baseline. I would then try my hand at changing IRMAA tiers and the like to see if you can do better than the automated case by playing with the other lumps and bumps in the tax code. If you can improve on Pralana optimization, then you could re-run the Historical Analysis to record your new case for easy reference.
Now, (finally!) to your question. As @rrkaushik noted, this is a workaround as the math is very likely to say that Pralana's approach of converting to a tax bracket or other tax limit is best. Get rid of any Roth Conversions that you and the optimizer just worked out that you don't want to keep. Then go to Build- Income-Employment and enter the amount you want to convert as Personal Contribution to Roth Accounts. This does not need any income and does not create any income, it just puts money in Roth. Note that these values are nominal, not inflation adjusted, so if you are doing several years of conversions, you might want to break it up into a couple of entries and manually apply inflation adjustments. Then on the Build-Scheduled Withdrawals, enter the matching values to withdraw from your IRA. Note that while eventually Stuart is aiming to make items on the Scheduled withdrawal table taxed in the current year, right now I think they are taxed in the following year.
Note that any manual plan may make no sense if you do any historical or Monte Carlo runs, or change withdrawal methods to use sophisticated withdrawal methods like Consumption Smoothing.
@ricke Hi Richard, Thank you for your answers. I had already changed the TJA of 2017 assumptions as you did. It does seem like we'll get at least a 5 year extension of those cuts. I am still running the Excel version, so it was challenging to follow some of your suggestions as the menu names are different. I will likely switch to the web version next year. That version should be much easier for Stuart & crew to maintain and change than the Excel version, so over time, I expect it to have more capability than the Excel version. For this year, I am going to do as you suggest and follow the PRC optimized recommendation.
Sorry, I didn't consider that you might be using Excel. I presume you found the items, if not, here's a quick run down. TCJA is on Home at the bottom. The heir's tax rate is on Financial Assets-Management under "Tax Rate for Converting Absolute Dollars to Effective Dollars". Selection of Mode 2 is also on Financial Assets-Management at the top, called "Asset Allocation Mode", then you select Financial Assets- Asset Classes & Allocations.
It has taken me a couple days of wondering around Pralana to appreciate just how well thought out the layout is done.
