Who do you hire to do tax planning?

[Mark2024]

The question is balancing optimal Roth conversation amount and lowest ACA cost. Is there a software we could purchase to do this? Or we need to get professional help. If we do, who do you call? I did a quick google search and could not find CPA with a retirement tax planning as a major business. May be I use the wrong words to do the search?

Initially, I though this is pretty easy - take out the income from the W-2 and the rest are the income. Then we go talk to an ACA broker about which plan to get and what price if our income is X, X+ 10K , etc. to find the balance. Until I saw some YouTube videos which made the situation much more complex.

 

[Dtail]

Supposedly the retirement calculator named Pralana Gold (not free) has a somewhat robust analysis on Roth conversion scenarios. I have not personally used it.

 

[pb4uski]

You're probably not going to find professional help since it is such a narrow niche. You might try to find a CPA who is a PFS (Personal Financial Specialist) in your area but they are hard to find. There used to be an online directory available but I can't find it.

I would try to estimate what I expect to be taxed on RMDs when the time comes and then convert today as long as the tax on conversions is the same or lower than the expected tax on future RMDs. In doing this calculation, I would include any reductions in ACA subsidies as a tax.

 

[Midpack]

Ask yourself:

1. What tax bracket are you in now?
2. What tax bracket will you be in when all your passive income kicks in - Soc Sec, RMDs, any pensions or annuities you aren't already taking, and any other passive income you aren't already taking.

If the latter bracket is higher, you may benefit from Roth conversions.

I used incomestrategy.com, but they were bought out by T Rowe Price. I have heard Pralana Gold is a great tool as well, but I have not used it myself.

 

[Koolau]

My CPA does a good j*b on my taxes but she's pretty much useless on tax planning. Not her thing and I understand that. I hope to find such a person to help plan our future. When one of us dies, the other will be holding the bag (of cash) that the gummint will want a bigger share of.

 

[HI Bill]

Funny, I was thinking about this question last week. I think there's a real need for an AI program that let's you input all of your assets (tax-deferred and taxable) along with your desired after-tax income level, and have it come up with the most tax-efficient option for withdrawals. Ideally, you could choose between lowest taxes in the long-haul, or the lowest earlier in FIRE, during your 'Go-Go' year when you'd like to spend more to enhance the quality of your life experiences...

 

[GravitySucks]

The problem with using software based solutions is there are assumptions you make or it makes for you. We don’t really know what taxes, RMDs, future returns, etc. will be.

Pick a pivot point based on your current situations.

Need ACA? Spend and convert to an acceptable limit to get a good rate.

On or approaching Medicare? Spend or convert up to IRMMA caps.

Stay flexible. Don’t let perfect be the enemy of good

 

[SevenUp]

The question is balancing optimal Roth conversation amount and lowest ACA cost. Is there a software we could purchase to do this?...we go talk to an ACA broker about which plan to get....

Seems which plan to get is the dog (based on your likely medical needs) and the tax consequences of Roth conversion is the tail. Dog first, tail wagging follows.

Roth Conversion and Capital Gains On ACA Health Insurance is a fine description of one way to do the wagging.

 

[CRLLS]

Before I was on Medicare, I was like you, trying to optimize the ACA premiums. Now well into Medicare territory, I wish I had not ignored that Roth conversion opportunity. Sure, I did Roth conversions for a couple of years while on Medicare but keeping under the IRRMA hit.

I would recommend planning for the long term, not a 1 year or 5 year plan solely for ACA premiums. I don't know exactly who to get for helping with that. I really don't think anyone can possibly know what the ACA costs and subsidy will be next year vs 5 years from now. Updating your plan annually, whether your own or from a hired gun, is important.

I did hire a FA to create a report looking forward at our tax situation well into our retirement. He made no recommendations, just a fancy multicolored 3-ring binder full of projections. It was worth the money. From there I created my own spreadsheet that I periodically adjust. It doesn't cover any decision making. For that, I use my own brain.

 

[Exchme]

Supposedly the retirement calculator named Pralana Gold (not free) has a somewhat robust analysis on Roth conversion scenarios. I have not personally used it.

+1
I think Pralana is the most powerful in the consumer tier and there are actually advisors use it for their clients. It has very good tax calculations, including a feature unique among the available calculators of making estimates of LTCG taxes when you sell to raise cash. It handles a wide variety of accounts, types of income and expenses, lots of selections for withdrawal strategies, account order for withdrawals. Another important feature most tools don't have is that it allows you to model holding bonds in tax deferred and stocks in Roth & taxable while holding your overall asset allocation constant. It also does Monte Carlo and historical modeling, so it's not beholden to just your guesses about future returns and inflation.

For ACA vs. Roth Conversions, you enter the tax rate to apply to residual balances of t-IRAs in the estate, the unsubsidized ACA plan cost and select what limit you would like to use for conversions (tax bracket, ACA FPL multiple, phase-in of LTCG, IRMAA tier) for each year and it instantly tells you the change in the final estate value. It has an optimizer for this, but that is only able to search the ordinary tax brackets. That plan will be pretty good, but you can optimize further manually.

It's currently a paid Excel spreadsheet (must be Excel). They are developing an online version that completed beta testing and is in limited release now (currently limited to 200 existing users) as they put finishing touches on it. It will have lots of small improvements, like the ability to click on account balances and show you the ins and outs of the account during the year, so it's much easier to tell if the program interpreted your input the way you meant.

 

[Badger]

Although our income way exceeds our spending due to RMD and dividends/interest we don't have anything to use for itemizing and no other way to reduce taxes so we have to take standard deduction. We don't pay for tax planning and use AARP for tax prep.

 

[big-papa]

I don't pay anybody for tax planning. I use 2 spreadsheets, one for Roth conversion optimization and another one for helping me calculate the current year's taxes for quarterly estimated payments. The first one is custom, but the second one is free and available from bogleheads website here: Tools and calculators - Bogleheads
Look for the section "personal finance toolbox.

As others have noted Pralana can do this. Current version is Excel so it helps to have some familiarity with spreadsheets. There is potentially a lot of info to enter and something of a learning curve. Supposedly, the web based version to be released soon has a more robust Roth conversion optimizer than the spreadsheet version has.

Regarding Roths conversions, what many people are looking for is how to maximize after-tax spending capacity. That means there are potentially a lot of moving parts including ACA subsidies, IRMAA, order of withdrawals from accounts, and taxes paid today vs taxes vs. taxes paid tomorrow. One shouldn't concentrate on just a single aspect of this process but look at it holistically.

Cheers.

 

[Koolau]

I don't pay anybody for tax planning. I use 2 spreadsheets, one for Roth conversion optimization and another one for helping me calculate the current year's taxes for quarterly estimated payments. The first one is custom, but the second one is free and available from bogleheads website here: Tools and calculators - Bogleheads
Look for the section "personal finance toolbox.

As others have noted Pralana can do this. Current version is Excel so it helps to have some familiarity with spreadsheets. There is potentially a lot of info to enter and something of a learning curve. Supposedly, the web based version to be released soon has a more robust Roth conversion optimizer than the spreadsheet version has.

Regarding Roths conversions, what many people are looking for is how to maximize after-tax spending capacity. That means there are potentially a lot of moving parts including ACA subsidies, IRMAA, order of withdrawals from accounts, and taxes paid today vs taxes vs. taxes paid tomorrow. One shouldn't concentrate on just a single aspect of this process but look at it holistically.

Cheers.

Yes, it is a minefield. You have to step very carefully. Good problems to have, I suppose, but makes it somewhat of a pain to plan - especially when limits change and there are cliffs involved.

 

[big-papa]

Yes, it is a minefield. You have to step very carefully. Good problems to have, I suppose, but makes it somewhat of a pain to plan - especially when limits change and there are cliffs involved.

Exactly - and if you're really good at spreadsheets you can put all of this together and use an optimizer. Over on bogleheads, for example, somebody put together their own spreadsheet for an optimizer and another couple of folks used the excel solver in conjunction with the RPM spreadsheet. Even then, it's a tough problem that's highly nonlinear and with discontinuities. If someone was going to go this route, they better be prepared to parameterize everything for limit changes, brackets, etc... And they should also seed each run with different starting points because there are plenty of local minima for an optimizer to get stuck in...

Cheers.

 

[brett]

For many years we had a CPA/tax specialist who worked out of her home. She saw us through several desk audits and refiles.

After retiring we did not require her services. She set us up with a tax plan for retirement that we have followed for the last ten years.

We will be going back for more advice next year and a new plan as our tax situation will be changing.

We have never had an issue paying for effective professional advice-legal or accounting. You do not know what you do not know.

 

[meleana]

We have a fee only financial planner.

 

[brett]

I do a proforma tax return for each of us in mid November.

By that time we have a very good estimate of where we will end up in December. It gives us time to make adjustments if required.

Our investment adviser is a CPA with a tax specialty. He often participates in the process with a review of our respective investment portfolios from a tax perspective.

 

[orbops]

In terms of estimating ACA premiums, I use this website:

Health Insurance Marketplace Calculator | KFF

The Health Insurance Marketplace Calculator, updated with 2024 premium data, provides estimates of health insurance premiums and subsidies for people purchasing insurance on their own in health insurance exchanges (or “Marketplaces”) created by the Affordable Care Act (ACA).

www.kff.org

Based on this calculator, you can see where the ACA subsidy cliff is based on your target AGI. Once you've got that number, you can then determine how much of a Roth conversion to do plus any income without wiping out the ACA subsidy. That's how I do it each year - so I always do my Roth conversion in December when I know how much other income is coming in for the year.

 

[I am He]

One wildcard is that the ACA income cliff is slated to return IIRC.

 

[Koolau]

Exactly - and if you're really good at spreadsheets you can put all of this together and use an optimizer. Over on bogleheads, for example, somebody put together their own spreadsheet for an optimizer and another couple of folks used the excel solver in conjunction with the RPM spreadsheet. Even then, it's a tough problem that's highly nonlinear and with discontinuities. If someone was going to go this route, they better be prepared to parameterize everything for limit changes, brackets, etc... And they should also seed each run with different starting points because there are plenty of local minima for an optimizer to get stuck in...

Cheers.

Yeah, and on stuff like IRMAA (I know. NOT strictly a tax) you have to do a bit of guess w*rk though Gumby keeps us well informed.

A MINE FIELD I tell you!

 

[Echard]

While I do my own financial planning and management, I want to find a fee-only financial planner to a) help me with analyzing the Roth conversion strategy, b) just look over my plan to see what they think, c) be available in the future if I pass before my wife or I tire of planning myself, and d) optimize tax planning.

I've had difficulty finding someone I trust. These very small firms make my nervous that they might be the next Bernie Madouf. The large firms seem to all charge AUM fees every year. I don't want or need that until or if my wife is left managing financials. Anyone have any recommendations or thoughts?