i-orp alternatives?

[Midpack]

I'm trying to get my head around how to plan for minimizing taxes during withdrawal. I've run i-orp and while it's a little difficult to interpret the results (to me), I think I understand. In the spirit of second opinions, anyone know of another tax/withdrawal optimizer that can deal with taxable, tax deferred and Roth's (currently $0 for us), Soc Sec, etc.? I realize no one can predict future tax rates or investment (sequence of) returns.

Free/donation based is good, but paid apps would be fine if it's value added...

 

[grasshopper]

I have thrown a few buck at some of the calculators, only to do my own thing anyway.
I have talked to these guys and even Bill Meyers the big cheese, he said that they can do exactly what you want. Pricey but could be worth it.

Retiree Income :: Get the most out of your retirement assets by developing a smart, personalized investment and withdrawal plan

 

[Lisa99]

I'm unable to find the cost of the service, but it sounds a lot like what ORP does.

 

[bo_knows]

I'd create a more easily understandable i-orp, if I knew all of the rules it was using behind the scenes.

I've often thought about doing a firecalc clone with my own list of inputs. But, I dunno.

 

[Midpack]

So I played with i-ORP this afternoon, and I guess I'm not surprised by the results (if I understand them correctly). Basically spend down taxable and convert TIRAs to Roth IRAs to age 70, with Soc Sec coming into the picture along the way. Taxable account gone by age 75, drawing down remaining TIRAs and Roth IRAs along with Soc Sec continuing from age 70-74 on. TIRAs almost gone about age 91 and Roth IRAs expire at age 96 (when I told ORP I'd go poof).

We end up paying about 4X the taxes we paid in 2012 (we haven't started Roth conversion since the Roth calculator I tried VG or Fido said it would be a wash ), but presumably ORP concludes we'd be better off in the long run. So that's what I'll study next...

Good thing I sorta enjoy this kind of exercise.

 

[Tyro]

If I understand the question, I think The Flexible Retirement Planner | A free online retirement calculator based on Monte Carlo Simulation will do what you're asking.

HTH,

Tyro

 

[samclem]

Last time I played a bit with i-orp I came away wondering if it was properly handling dividends and LTCG under the new permanent rules. I need to dig in a bit deeper. It seemed to recommend very little by way of optimizing draw to stay under the top of the 15% bracket (by using Roth withdrawals to make up the difference in the yearly spending amount). But to be fair I need to spend more time with it.

 

[LOL!]

I wonder if the basic ESPlanner.com does this kind of thing.

I recommend that one run TurboTax with the numbers from the output of i-orp. Perhaps just run TT for every fifth year of i-orp output just to see if the amount of income tax is correct. I found that it overestimated taxes paid for our situation which meant that we could convert more 401(k) to Roth IRA.

 

[explanade]

Bookmarking.

How do you manage the capital gains distributions and dividends which boost your AGI when it comes time to withdraw?

The withdraws will trigger their own cap gains (hopefully) transactions so would you withdraw less than the percentage you planned to withdraw because of the normal dividends and cap gains distributions to your taxable accounts?

Or would you even be still doing dividend reinvestment when you're past the accumulation phase?

 

[LOL!]

I'm not sure i-orp knows about your massive carryover losses from 2008-2009, so that you won't be paying taxes on those realized cap gains for quite a while.

 

[explanade]

"Massive carryover losses?" Is that addressed at me?

Only if you sold at the bottom right? Because the market has come back and then some since then?

 

[LOL!]

"Massive carryover losses?" Is that addressed at me?

Only if you sold at the bottom right? Because the market has come back and then some since then?

Not "sold" at the bottom, "tax-loss harvested" at the bottom. Most folks on this forum did tax-loss harvesting back then.

 

[Lisa99]

According to ORP's what's new page, tax law changes were last updated in January 2011, so the program isn't current.

Not sure I would trust its withdrawal recommendations at this point.

 

[Midpack]

Still playing, but this graph uses all the same inputs except for a +1% real return on after tax accounts (all equity funds) and -1% real return on IRAs (all bond funds) - first chart below. The second chart is the same as post #5 above, with a +2.5% real return on all accounts.

Completely different result regarding Roth conversion. Makes sense as I think about it, but I hadn't thought about it before...

Fortunately I have lots of time to decide what to do, having fun [-]playing[/-] investigating in the interim.

 

[Lsbcal]

What drove our tIRA -> Roth conversion process was the marginal tax rate we could do this at. What is a good rate depends on how your tax situation might change as you get towards taking SS and also RMD's. I don't think ORP handles taxes very well and it's so individual.

When RMD's kick in for us we will be locked into a tax situation due to the required tIRA income + SS. No way to totally avoid paying taxes but that's the cost of living in a free country.

I noticed that ORP was telling me to take all Roth distributions early on. It seemed to be optimized to reduce taxes but did not consider the tax consequences of having an even bigger tIRA + SS later on. I communicated with the author and he seemed to indicate that yes indeed the tool may not be optimized for my case. ORP has encouraged me to take lots of Roth distributions and our tax situation now and before RMD's will give us low marginal rates.

I agree with LOL that it's good to do some TurboTax tables to at least understand the tax tradeoffs at the current rates and laws for your case.

 

[NanoSour]

I find ORP to be an excellent withdrawal calculator. Before running ORP, I had no idea I should convert my 401K over to a Roth over several years. Always staying at 15% or below tax rate.

Having just recently purchased ESPlanner Plus I can say that it doesn't consider this type of conversion very easily. You can fat finger it in, but it would take some effort. If you leave things as they are, you can consider the inflated tax numbers as a cushion. This is how I'm interpreting my ESP results. I know with my individual situation that taxes will be several thousand $$$ lower than ESP predicts. Just gives me more faith in the number. Every bit helps.

 

[Midpack]

Another wrinkle for me to factor it.

When the value of your investments in a Roth IRA decreases, you might wonder if there’s a way to write off those losses on your federal income tax return. The Internal Revenue Service does not permit you to deduct losses from your Roth IRA on a year-to-year basis, so the only way to deduct your losses is to close your Roth IRA accounts.

Wouldn't it be wonderful to pay taxes on all the money going in, with no way to recoup capital losses should they occur? With TIRAs, at least I only pay taxes on what comes out, gains or losses...

 

[anethum]

There's one part of my Roth conversion results from the i-orp planner which I cannot figure out. I'm 58, and if I tell the planner that I'll begin collecting Social Security when I'm 66, it has me convert the maximum amount to my Roth while allowing me to remain in the 15% federal tax bracket until I'm 63. But then, it reduces by more than half my Roth conversions for the next 3 years (and my taxes drop to almost nothing). Then, when I'm 66 and start drawing Social Security, it has me resume the larger Roth conversions until I'm 70. I can't figure out why it's advantageous for me to have smaller Roth conversions for 3 years from age 63 to 65. Any thoughts?

 

[explanade]

TIRA is traditional IRA?

So you can convert to Roth AFTER you retire?

I did some conversions in the past couple of years (I believe they allowed conversions only for a limited time?) but each year, I have to add to regular IRA because of the AGI limits.

 

[Alan]

TIRA is traditional IRA?

So you can convert to Roth AFTER you retire?

Yes indeed.

 

[samclem]

When RMD's kick in for us we will be locked into a tax situation due to the required tIRA income + SS. No way to totally avoid paying taxes but that's the cost of living in a free country.

Like you, we will push back any RMD-induced creep up the tax brackets in later years by doing iTRA --> Roth conversions. But I won't go crazy over it:
-- Who knows what might happen to allow the government to tax Roth distributions (directly or indirectly--VAT, higher taxes on SS due to total income from all sources, etc).
-- By the time I reach RMDville, the remaining road is a bit shorter and if high taxes are a problem it means the nest egg has done well for us. In the home stretch and with the wind at our backs, paying taxes will hurt a bit less than it would today. Maybe.

 

[RetiringAt55]

I played around with ORP yesterday and could not find a way to model income ending because of the death of one spouse. This is such a huge factor. I don't understand why they don't have end dates for SS and pension incomes and instead assume that both spouses live until the end. Am I missing something?

 

[NanoSour]

I played around with ORP yesterday and could not find a way to model income ending because of the death of one spouse. This is such a huge factor. I don't understand why they don't have end dates for SS and pension incomes and instead assume that both spouses live until the end. Am I missing something?

This is one of the things the ESPlanner does very well. Of course you have to tell it what year the unfortunate death will happen, but it will give a full report including child entitlements if still at home.