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What Tax Filing Software to use for Roth Conversion Estimates?
Old 06-09-2021, 04:51 PM   #1
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What Tax Filing Software to use for Roth Conversion Estimates?

Hi. I watched an informational video recently about Roth conversions. A suggestion was made to use tax preparation software to test the tax liability outcomes connected to particular roth conversion amounts. I use the free file version of TurboTax because my income is low enough to qualify for it. I tried to see if I could run some Roth conversion amount scenarios for tax year 2021 using the free file version of TurboTax, but I donít see the TurboTax software being available for tax year 2021.

My question is, for those who use tax filing software to run different scenarios and decide on an amount of Roth conversion, what software/website do you use and when is the earliest that you can start using the software? Thanks.
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Old 06-09-2021, 08:27 PM   #2
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I use a spreadsheet I created to calculate conversions to the top of the tax bracket I wanted based on other income.
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Old 06-09-2021, 08:59 PM   #3
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Install the 2020 version of TT. Then use the What-If worksheet to test scenarios.
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Old 06-09-2021, 09:37 PM   #4
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You can't use the Freefile version of TTax to test scenarios for 2021.

efile.com claims to have a tool for 2021, but I did not test it to see if it accounts for Roth conversions.
https://www.efile.com/tax-service/ta...ax-calculator/
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Old 06-09-2021, 11:25 PM   #5
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The case study spreadsheet works well for us.

It's the same tool that was used to generate the charts in Roth IRA conversion - Bogleheads and Traditional versus Roth examples - Bogleheads.

Based on this post the 2021 version came out 11/29/2020, and American Rescue Plan updates on March 15, 2021.
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Old 06-09-2021, 11:44 PM   #6
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Generally tax software for the new year comes out around Thanksgiving. There are often sales around that time of year as well.

I personally use TaxSlayer because I am a volunteer tax preparer and can get access to it for free. I usually do my Roth conversion planning and execution in late December. Roth conversions must be done in the calendar year.

For most people, there is a target AGI they're aiming for, either for ACA subsidies, or to be under some tax threshold. In this case, one can just total one's AGI in a spreadsheet: add up your interest, dividend, wages, capital gains, and net self employment income, plus anything else that is on the first 8 lines or so of the 1040. Subtract your HSA contributions and ARPA charitable donations. That's your current AGI without any Roth conversions.

Subtract that current AGI from your target AGI, allow a little wiggle room, then the rest is what you can Roth convert.
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Old 06-10-2021, 12:04 AM   #7
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If you are already retired then the current year version is close enough.
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Old 06-10-2021, 04:49 AM   #8
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Quote:
Originally Posted by target2019 View Post
Install the 2020 version of TT. Then use the What-If worksheet to test scenarios.
+1. Plenty close enough to estimate what to expect in 2021 IME. When I started Roth conversions I created a second TT return with Roth conversions to see the impact, and left all other entries the same (wages, interest, dividends, cap gains, etc.).
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Old 06-10-2021, 05:27 AM   #9
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+1. Plenty close enough to estimate what to expect in 2021 IME. When I started Roth conversions I created a second TT return with Roth conversions to see the impact, and left all other entries the same (wages, interest, dividends, cap gains, etc.).
The What-if Worksheet is really great IMO. Besides the 3 columns you have in What-If for scenarios, one could use the ES & W4 Worksheet. There you only have 2020 and 2021 columns, but you'll also get updated 1040ES Worksheet(s).
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Old 06-10-2021, 05:51 AM   #10
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spreadsheet.. and other less common

I deal with roth conversions where IRA's with non zero basis

It takes a small number of active cells.
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Old 06-10-2021, 07:51 AM   #11
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Since I use the download version of TT I have access to the What-If worksheet year round so I would use that.... unfortunately, I don't think that you have access to the What-If worksheet with the version that you use.

I would use this tax calculator. Put in your 2020 numbers and see if you get your 2020 tax. Then change the calculator and put in your 2021 numbers excluding the Roth conversions. Then experiment with different anounts of Roth conversions and see how the tax changes for each. Good luck.

https://www.irscalculators.com/tax-calculator
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Old 06-10-2021, 07:51 AM   #12
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I'm aligned with SecondCor521. There's no reason to put a fine point on it before the end of December. Buy tax software in November and define your precision conversion in December.
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Old 06-10-2021, 08:08 AM   #13
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https://www.dinkytown.net/java/1040-tax-calculator.html is an online freebie I see mentioned here sometimes. I haven't used it that much myself but it seemed accurate when I did.

https://turbotax.intuit.com/tax-tool...tors/taxcaster appears to still be on 2021.
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Old 06-10-2021, 08:36 AM   #14
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I must be missing something. Why do you need tax return software to figure out a Roth conversion?

Assuming you have a fairly steady income (i.e. your income this year will be about the same as last year), just subtract your income from the top value for your tax bracket (or wait till the end of the year to see how much you earned).

For example, if you're married filing jointly in the 12% tax bracket, the top is $80,250. If your income was $60,000 you can convert about $20,000 and stay in the 12% bracket. Even if you go over a bit, the next 22% bracket will only apply to the amount over the $80,250 bracket limit.

Anyway, that's the process I use and it has worked well for me. If I'm converting $20K, I multiply that by my tax bracket (12%), and pay the $2400 estimated tax online using EFTPS. Close enough for my needs.
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Old 06-10-2021, 08:44 AM   #15
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mountainsoft, what you described works well if you don't have any preferenced income (qualified dividends or LTCG) but if you have preferenced income it gets squirrelly after MFJ taxable income of $81,050 in 2021. Roth conversions above that for a while are taxed at 27% (12% on the Roth conversion and 15% on preferenced income pushed above the 0% preferenced income tax bracket. So it is wise to use a tax calculator to do the calculations, especially if you have a lot of preferenced income and/or want to go higher than the top of the 12% tax bracket.

But the OP's query is easily addressed by either the dinkytown tax calctor that RB suggested or the link I provided.
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Old 06-10-2021, 09:29 AM   #16
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Are you trying to optimize your Roth conversions across your lifetime or just have an estimate of this year's taxes? The tax software is going to be more accurate for current year taxes, but using it over and over every year would be a lot of work and your situation changes as IRMAA, SS, RMDs all become part of your life. Also many elements in the tax code are adjusted for inflation, the TCJA tax cuts are set to expire and so forth, so I wouldn't use tax software for lifetime Roth planning.

If you are trying to optimize across your lifetime, then my suggestions from simplest to most comprehensive are:

I-orp extended - It can give you a reasonable feel for a Roth conversion plan without a lot of work. It is missing some accuracy in taxes but is easy to use and results will usually be in the ballpark. A missing piece is the two year look back for calculating IRMAA, so for instance i-orp uses income at age 65 instead of age 63 to calculate medicare costs at age 65.

Retiree Portfolio Model - spreadsheet available at bogleheads.org. Very detailed input required and it's not always obvious where you input things. Covers more of the tax code than i-orp but still missing a few details and requires you to input the Roth conversion amounts each year, it does not try to make a plan. You can set your heir's estimated tax rate when they withdraw anything that's left so with some work you can look at different strategies on an equal footing since a $ left in tax deferred is less valuable than a $ in other accounts. Interesting if you are nimble in spreadsheets.

For my own situation, I decided spending a few $ would be worth it, so I bought Pralana Gold ($99 1st year, I think $49 updates, requires MS Excel-no substitutes). Its tax module is much stronger and covers the things I was wanting like existing Long Term Capital Gains, capital loss carryover, non-deductible IRA contributions, inherited IRA, deduction phaseouts, AMT.

For Roth planning, Pralana Gold has a Roth optimizer. While I'm not totally in love with that feature, you can also mostly chart your own path by providing a % of the initial tax deferred account to convert, the tax brackets and IRMAA tiers to respect and letting it find the optimum path within your constraints. To estimate the tax impact of the remaining tax deferred balance for your heirs, it uses your average lifetime marginal tax rate.

It's a very detailed program like RPM, but things are well labeled and there is a good manual, so if you are familiar with the concepts, you can get the hang of it. I bought it 4-5 months ago and really like it, now I do all my planning with it.

After a lot of work, I came to the conclusion that in my case, there was a broad, flat optimum, as long as I converted at least 40% of my initial tax deferred account balance, the results were very close. But there are so many critical variables - account balances, rates of return, other income, life spans, etc. that no one should generalize.
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Old 06-10-2021, 09:52 AM   #17
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Unless there is a substantive change in the tax law affecting current year, I normally just use my prior year copy of H&R Block Deluxe and adjust the inputs from prior year to reflected best guess at current year. I never tried to cut it real close.



Normally I did my conversions in December when I know nearly everything about my full year income; I could use the newest software but often it is pretty buggy at that point. Tax software doesn't really stabilize until March (or later).
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