Calculator for Estimating Roth Conversions?

[FiveDriver]

I spent Sunday searching for a Calculator that would estimate the Tax Bite for incremental Roth Conversions. I discovered that the interweb was sorely lacking in exactly what I was looking for.

I would just like to explore the increase in Income Tax for a range of conversions from my IRA into my existing Roth --

How much extra Tax owed now, to move money into a long-term Tax Free situation.

Fidelity had something that was overkill for what I was seeking.
The NewRetirement site had a tool that produced less than helpful results.
The Schwab site was basically useless for my purposes.....c'mon Charlie !!

Essentially, we must define Filing Status (MFJ).
Define the upper bounds of each Tax Bracket, ex. $190K for 22%.
Take prior year's Tax Return Adjusted Gross Income -- Line 11.
Leave enough headroom to account for increases in SS, or other Income.
Increase AGI incrementally by the amount we want to convert into Roth.
Compare the resulting Total Tax to the prior year's Total Tax. Simple, yes ??

All the online calcs I saw used Adjusted Gross Income (not MAGI, or some other derivative.
There may be some variance when including Taxable Social Security Benefits.

Is there anything else that needs to be factored in to this exercise ?

 

[SecondCor521]

The Case Study Spreadsheet will do exactly what you want, with a helpful graph.

The most recent version is at https://forum.mrmoneymustache.com/f...dy-spreadsheet-updates/msg3235513/#msg3235513.

There is some learning curve, and you might consider it overkill, but in terms of figuring out the answer to your question, I think it's excellent. It's what I use (along with a homemade spreadsheet to estimate my future tax rates) to figure out how much Roth conversion to do each year.

 

[SevenUp]

The Case Study Spreadsheet will do exactly what you want, with a helpful graph.

The most recent version is at https://forum.mrmoneymustache.com/f...dy-spreadsheet-updates/msg3235513/#msg3235513.

There is some learning curve, and you might consider it overkill, but in terms of figuring out the answer to your question, I think it's excellent. It's what I use (along with a homemade spreadsheet to estimate my future tax rates) to figure out how much Roth conversion to do each year.

+1

Roth Conversion with Social Security and Medicare IRMAA has some helpful instructions for using that tool. Does require Excel.

 

[TheWizard]

It's rather easy to do it yourself.
For younger retirees, in their 60s or below, set up a spreadsheet that projects your AGI once you start SS at age 70 and continuing through the start of RMDs at age 73 or 75.

Then do Roth conversions in your 60s roughly equal to projected SS plus projected RMD. In my case, that came to around $60k per year, filing Single, and discounting some inflation.

You might need to keep an eye on projected IRMAA thresholds two years hence and adjust your Roth contribution amount so your AGI isn't just over a threshold.

Now that I'm 74 and well past that early phase of retirement, it's even simpler. Each end of November, I total up my income for the year and then decide on a relatively modest Roth conversion amount that: a) keeps my Taxable Income from going over the top of the 24% bracket, and b) keeps my AGI from getting too close to the next higher projected IRMAA threshold for two years hence.
Others will obviously need to adjust that for their own income level and IRMAA, if applicable...

 

[Dtail]

I hear that the Pralana Gold (not free) retirement calculator does a good job with the Roth conversions now that the free I-ORP calculator is not up todate.
Any thoughts on this calculator?

 

[SevenUp]

I hear that the Pralana Gold (not free) retirement calculator does a good job with the Roth conversions now that the free I-ORP calculator is not up todate.
Any thoughts on this calculator?

All multi-year calculators, whether fee or free, suffer from the inability to predict accurately future tax law, investment returns, and personal situations.

The best they can do is give you a rough idea for a strategy. E.g., estimate what marginal tax rate you might have when faced with RMDs and SS benefits, and/or the surviving spouse situation. Given that, determine the Roth conversion amount that more or less matches that future marginal rate for this year. This is very similar to the approach TheWizard mentioned, except substituting "marginal tax rate" for "AGI".

Tools such as the one SecondCor521 mentioned can then be used for current year tactics.

 

[pb4uski]

I spent Sunday searching for a Calculator that would estimate the Tax Bite for incremental Roth Conversions. I discovered that the interweb was sorely lacking in exactly what I was looking for.

I would just like to explore the increase in Income Tax for a range of conversions from my IRA into my existing Roth --

How much extra Tax owed now, to move money into a long-term Tax Free situation.

Fidelity had something that was overkill for what I was seeking.
The NewRetirement site had a tool that produced less than helpful results.
The Schwab site was basically useless for my purposes.....c'mon Charlie !!

Essentially, we must define Filing Status (MFJ).
Define the upper bounds of each Tax Bracket, ex. $190K for 22%.
Take prior year's Tax Return Adjusted Gross Income -- Line 11.
Leave enough headroom to account for increases in SS, or other Income.
Increase AGI incrementally by the amount we want to convert into Roth.
Compare the resulting Total Tax to the prior year's Total Tax. Simple, yes ??

All the online calcs I saw used Adjusted Gross Income (not MAGI, or some other derivative.
There may be some variance when including Taxable Social Security Benefits.

Is there anything else that needs to be factored in to this exercise ?

I use https://www.irscalculators.com/tax-calculator

One tab with numbers with no Roth conversions. The tool also determines taxable social security.

Then duplicate that tab and add a Roth conversion.

Then duplicate that tab and add more if you want to.

Theni I look at the increase in tax divided by the increase in the Roth conversion.

Since I'm retired and have no wages, I can use the Wages line for Roth conversion and jut uncheck the SS and Medicare Taxes boxes.

If you use TurboTax you can do the same thing with the What-If Worksheet. Column 1 is next year's return without any Roth conversions and subsequent columns can be Column 1 with additional levels of Roth conversions.

 

[RunningBum]

I use https://www.irscalculators.com/tax-calculator

One tab with numbers with no Roth conversions. The tool also determines taxable social security.

Then duplicate that tab and add a Roth conversion.

Then duplicate that tab and add more if you want to.

Theni I look at the increase in tax divided by the increase in the Roth conversion.

Since I'm retired and have no wages, I can use the Wages line for Roth conversion and jut uncheck the SS and Medicare Taxes boxes.

If you use TurboTax you can do the same thing with the What-If Worksheet. Column 1 is next year's return without any Roth conversions and subsequent columns can be Column 1 with additional levels of Roth conversions.

+1.
If an ACA subsidy or IRMAA applies, you'll have to factor that in separately, but this is a great tool for doing everything else with income tax estimations.

 

[SecondCor521]

+1.
If an ACA subsidy or IRMAA applies, you'll have to factor that in separately, but this is a great tool for doing everything else with income tax estimations.

FWIW, the tool mentioned in the second post on this thread can include both ACA subsidies and IRMAA breakpoints.

 

[FiveDriver]

I use https://www.irscalculators.com/tax-calculator

One tab with numbers with no Roth conversions. The tool also determines taxable social security.

Then duplicate that tab and add a Roth conversion.

Then duplicate that tab and add more if you want to.

Theni I look at the increase in tax divided by the increase in the Roth conversion.

Since I'm retired and have no wages, I can use the Wages line for Roth conversion and jut uncheck the SS and Medicare Taxes boxes.

If you use TurboTax you can do the same thing with the What-If Worksheet. Column 1 is next year's return without any Roth conversions and subsequent columns can be Column 1 with additional levels of Roth conversions.

Once again, I Thank You Sir.
This site will give me what I'm looking for. I just want to make sure that any Conversion decision I make on Dec 30 2024 still makes sense on April 14 2025.

 

[Rianne]

I use https://www.irscalculators.com/tax-calculator

This link is incorrect for IL taxes. IRA distributions are not taxed in IL but the irs tax calculator counts the distribution as taxable income. Am I doing this wrong?

 

[walkinwood]

I just bought Pralana Gold (PG) for $99. Right now, it needs Excel, but they promise a web-based solution in the early summer. I've been playing with it and while there is an initial learning curve, it is very powerful. There is a good bogleheads demo video on youtube on the tool.

One caveat - it is impossible to predict the performance of your portfolio or the tax law in the years ahead.

PG has a very flexible ROTH conversion tool where you can choose to limit your ROTH conversions by year (to tax bracket, IRMAA bracket) and see the savings that strategy would produce. Pralana also has an optimization program which I haven't used yet.

PG uses the tax law as we know it now and monte carlo or historical simulations to provide projections for the future.

 

[pb4uski]

This link is incorrect for IL taxes. IRA distributions are not taxed in IL but the irs tax calculator counts the distribution as taxable income. Am I doing this wrong?

Yes, the state tax calculations can be inaccurate.

But if IRA distributions are not taxed in IL then why bother to include state income taxes at all in evaluating Roth conversions? Just ignore state taxes since it doesn't matter.

 

[TheWizard]

These various calculators are fine, but they don't really address the various reasons behind why you might want to do Roth conversions in the first place.
A few examples:
1) tax arbitrage. You want to do conversions mostly in the 12% bracket for the next few years because you have reasonable confidence in getting into the 22% bracket later when SS and RMDs start.

2) You do Roth conversions in your current bracket, which is likely to be the same forever, to build a tax-free fund for occasional large purchases.

3) similar to 2), but your conversions, together with QCDs possibly, are done to keep you out of the next higher IRMAA tier.

4) You do conversions, possibly into the next higher tax bracket, so that eventual surviving spouse won't have large RMDs putting him/her into even higher tax bracket.

5) similar to 4) but for non-spousal beneficiaries dealing with the ten-year rule on top of decently high earned income.

I'd be surprised if any tool can address these concepts...

 

[Rianne]

Yes, the state tax calculations can be inaccurate.

But if IRA distributions are not taxed in IL then why bother to include state income taxes at all in evaluating Roth conversions? Just ignore state taxes since it doesn't matter.

Right, I would just put dividends and taxable interest in that line and subtract any IRA distributions.

 

[sakowitzm]

I didn't see the simplest way of all to get a rough idea of the impact of the conversions. Assuming you use TurboTax or equivalent, just make a copy of your return and on the copy, increase your taxable income to see the impact. There are a number of reasons why this isn't quite accurate, but the entire exercise has many variables making it just a ballpark figure anyway.

 

[Exchme]

These various calculators are fine, but they don't really address the various reasons behind why you might want to do Roth conversions in the first place.
A few examples:
1) tax arbitrage. You want to do conversions mostly in the 12% bracket for the next few years because you have reasonable confidence in getting into the 22% bracket later when SS and RMDs start.

2) You do Roth conversions in your current bracket, which is likely to be the same forever, to build a tax-free fund for occasional large purchases.

3) similar to 2), but your conversions, together with QCDs possibly, are done to keep you out of the next higher IRMAA tier.

4) You do conversions, possibly into the next higher tax bracket, so that eventual surviving spouse won't have large RMDs putting him/her into even higher tax bracket.

5) similar to 4) but for non-spousal beneficiaries dealing with the ten-year rule on top of decently high earned income.

I'd be surprised if any tool can address these concepts...

I agree that nothing will do all that automatically. Some of the full year by year calculators will allow you to make various adjustments and see the results to investigate the case studies you suggested. I've extensively used the only two that I know of that will allow you to use tax efficient asset location (bonds in tax deferred, stocks in Roth & taxable). Since tax efficient location will, as the name suggests, save on taxes, that reduces the amount of Roth Conversions that make sense.

The free option is the Bogleheads Retiree Portfolio Model (at their wiki). It does a solid job, handling federal tax brackets, IRMAA tiers, the LTCG tax phase-in and QCDs. I find the inputs are laid out in a quirky way, where I'm always scrolling through, trying to remember where the various inputs are. I remember getting quite frustrated that I have to scroll way down the page to tell it I have an inherited IRA, before I come back near the top and tell it the year I inherited it and then go somewhere in the middle to tell it the amount. It's purely manual on setting Roth Conversion amounts and you have to hunt around multiple sheets to see where you are relative to IRMAA tiers, ACA premium credits and the LTCG tax phase-in, so very time consuming. You may have to write formulas if your finances are more complex than the author anticipated. But it's open art and everything is visible and modifiable. Tech support is a thread on the bogleheads forum.

The more full featured and powerful option is Pralana Gold (paid program, currently Excel based, will transition to web based soon). That allows you to select, year by year, which spouse's account to convert first, the tax bracket/IRMAA tier/ACA FPL multiple to use and whether to stay below the LTCG tax phase-in. With each change you make, it instantly tells you the change to your final estate value. So in a few minutes of playing, you can get a Roth Conversion plan. Its tech support is via e-mail to the author where you send the input file also a dedicated Pralana forum that the author monitors.

It takes a genuine time commitment to learn the full featured programs, but, if your tax bracket will be highly variable without them, the benefits can be very large. It would have been OK to hire it done, but I wanted to DIY, so took the time to learn.