Modeling Roth conversions

[JoelAlbert1]

Just updated to the latest FRP and wonder if there has been any change in how to model Roth Conversions.

In the past I had to
Tax Deferred Savings - Enter a Negative Number, e.g. ($100,000)
Tax Free Savings - Enter a Positive Number, e.g. $100,000
Other Expense - Estimated Tax on the Conversion amount, e.g. Income Tax Rate x $100,000

Very kludgy! Is there a better way?

Thanks

Joel

[jimr]

Unfortunately, there isn't a better way to do this than what you mentioned.

[JoelAlbert1]

Jimr,

Appreciate the quick response.

Happy New Year

Joel

[jwendellp]

I'm in a similar situation where I plan to do Roth conversions for 5 years while staying within the 12% marginal rate. If I have specified additional inputs reflecting the 12% tax rate for those years, do I still have to explicitly specify "other expenses" for tax on the conversions, or will the previously-specified 12% rate handle the tax as I would expect? It seems that for all other withdrawals from the tax-deferred portfolio imputes taxes at the specified rate.

The reason I ask is that the column "Additional Withdrawal" seems to reflect the conversions, but "Taxes on Withdrawal" shows as zero.

John

[jimr]

I assume you're using a negative savings cashflow out of the tax deferred portfolio and taxes aren't automatically deducted on negative savings cashflows.

The negative savings cashflow is sort of a back-door hack you can use to do the roth conversion. I enabled this a few releases back. In earlier releases, savings cashflows had to be be positive because that code doesn't handle taxes. The upshot is that you're on your own with figuring out taxes on the conversion.

The detailed view, with the "show more details" radio button selected, should allow you to see exactly what's happening with the conversion including any tax implications. You can see even more details by right-clicking on any column header and selecting "show all columns."

[jwendellp]

Thanks, Jim, I understand. Without knowing how difficult it might be to implement, enabling the "Taxable Percent" field for negative cash flows from Tax Deferred Savings would be a convenient feature.

Best,
John

[jimr]

I took a shot at adding a "Roth Conversion" cashflow type and I've posted a beta version of the code for testing below. The change to the sim code turned out to be relatively limited.

See this post for the download links:
viewtopic.php?f=7&t=1381

(NOTE: if you use this new version and later decide to back-rev, any .frp files you have that contain the new "Roth Conversion" cashflow type will not load with older versions of the planner. To fix this, you'd need to use the new version to delete the "Roth Conversion" cash flows, or you'd need to manually edit the .frp file to remove them (not recommended).

[jwendellp]

Thanks for your efforts on this, Jim. I'd love to try the beta release but the URL seems to be truncated...
John

[jwendellp]

I found the download link on another thread. I generally use a mac, but downloaded the beta on a windows 10 box, but when I launch it I get an error message stating, "This application was configured to use a bundled Java Runtime Environment but the runtime is missing or corrupt.

Any guidance? Or, any chance of building a macos version of the beta?

[jimr]

Thanks for letting me know. The link should be fixed now.