Roth Conversion OptimizationRoth Conversion Optimization helps you decide how much to convert from pre-tax retirement accounts (like a Traditional IRA or 401(k)) into a Roth account, and when to do it. Converting can be powerful because it turns pre-tax savings into tax-free growth, but it also creates taxable income in the year(s) you convert—so the “best” plan is usually about balancing taxes [...]
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15 ArticlesCan I run Roth Conversion scenarios to see if it makes sense and the best timing and amounts for a conversion?
You can run Roth Conversion scenarios under Scenarios>Roth IRA Conversion. Most people run scenarios where they specify that they want to stay under a certain tax bracket.The program will show you exactly how much to convert in each year so you just stay under the selected tax bracket. You can also choose your own amounts to convert each year by selected 'Manual Entry'. View the amount to [...]
Which account does WealthTrace use to pay the taxes generated by a Roth conversion, and can I choose which account is used?
When WealthTrace calculates taxes resulting from a Roth conversion, those taxes are treated as an expense within the plan.Currently, WealthTrace pays those taxes in the following order:Taxable investment accounts - funds are taken from taxable accounts in the same order they would normally be used to pay other expenses.The IRA being converted - if there are no taxable funds available, WealthTrace [...]
I ran a Roth conversion scenario and applied the same amount to convert to my Roth account in my plan. The results are very different from the scenario. Why aren't they the same?
The Roth conversion scenario will assume that the account the conversion is going into will have the same annual return as the account the money is coming from. This way you are comparing apples to apples with the conversion scenario. If you add a conversion to a Roth investment in the actual plan, the program will not assume that the annual returns are the same. It will still use the annual [...]
I can't find where to tell the program I will have a Roth IRA conversion. Where is this done?
You must have an investment set up with an 'Account Type' of Roth IRA. You can then add the conversion information in the 'Roth Conversions' section as you see in the screenshots below. In this example this person is converting a manually entered dollar amount by year. You can also convert from more than one account at a time. To convert from more than one account to the Roth IRA, select the [...]
I want to optimize Roth conversions for my children to give them the most after-tax money possible.
How “Maximize the Investment Value for Beneficiaries” worksWhen you pick Maximize the Investment Value for Beneficiaries, the optimizer stops focusing primarily on your lifetime outcomes and instead prioritizes how much after-tax value your beneficiaries are expected to receive from what you leave behind.That changes the math in two big ways:It evaluates outcomes from the beneficiary’s perspective [...]
Can I enter multiple Roth IRA conversions?
You can have multiple conversions as long as you have more than one Roth IRA entered. Each IRA or 401(k) that's converted must have a Roth IRA to go with it to convert [...]
When I run Roth conversion scenarios, which account do the converted funds go into?
If you have a Roth account already, it will move the funds into that account. If you have more than one Roth account, it will use the first one in the list. If you have no Roth accounts, the program creates one behind the scenes with a $0 balance. Also note that the Annual Return used for the Roth account in this scenario of the account being converted. This allows the program to compare apples to [...]
I have a 401(k) that is partially in a Roth. When the account is linked, it places it all into one account. How do I tell the program that part of it is a Roth?
You can specify the percent of a 401(k) that is in a Roth. The program assumes this percentage stays the same [...]
Where do I enter a Roth IRA?
Manually entered Roth IRAs are entered in the Investment Assets section as you see below. They will show up in the Taxable & Tax-Advantaged tab in Investment [...]