Roth conversion and RMD projections

Submitted by James Brost on Tue, 2024-06-25 19:35

Is there a good resource available to do projections on Roth conversions?  I am working with a client that has over $4,000,000 in an IRA who will be subject to RMDs in 5 years.  I’m trying to project or model out various scenarios to determine how much can be converted each year to reduce the impact of substantial distributions. I want to figure out what Roth Conversion number is impactful enough but  also not too painful each year.

Our firm doesn’t currently have any financial planning software that can help with this type of projection.



Submitted by PaulC on Thu, 2024-06-27 16:33

For multi-year tax projections of Roth conversions, that’s a situation where I would use Bloomberg Tax (formerly BNA). That’s a highly capable, complicated and not very user-friendly, tax software.

eMoney can model it, but detailed tax planning is not its strength, so getting the desired precision may not be possible.

I’m not very familiar, but you could take a look at Income Lab software. It should handle multi-year Roth conversion scenario planning, but can also do much more than that.

Submitted by Alan - IRA critic on Thu, 2024-06-27 23:01

One challenge will be the assumption of post 2025 tax rates, which will be affected by the election, but even if it was known how the election would turn out, there would still be considerable uncertainty. If client is married, both the mortality of client and spouse are factors, since a SS will be subject to the higher single brackets. And how many years, if any, before SS benefits begin.

Another subjective variable for some IRA owners, is the nature of the non spouse beneficiary after the spouse passes, and what bracket they might be in, or if a charity will eventually inherit.

 

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