The main benefit of Roths seems to be reducing the RMDs (now you must take them starting at age 70 1/2, proposed to be age 72). In most cases it takes 20-25 years for the portfolio using Roth Conversions to overtake the portfolio Roths.Ģ. Using Roth conversions can end up saving a fair amount of money if you have a large amount of your portfolio in tIRA accounts, but you need to have a long investing horizon.
Most of what the model shows are consistent with the conventional wisdom about Roth conversions:ġ. I included income taxes, capital gains taxes and taxes on social security (which BTW end up being quite complicated). The size of the model exceed the capability of the standard excel "solver" add-in fortunately there is a good GNU "freeware" add in called "OpenSolver" ( ) that can handle a model of this size (it ended up having 2022 variables with 2580 constraints). Maximize the ending value of the portfolio. Meet annual expenses (including taxes), andī.
It is a pretty large workbook that uses a MILP (mixed integer linear programming) to find the optimal sequence of Roth Conversions, Roth Withdraws, tIRA withdraws, and selling of assets outside of IRAs (including capital gains) to:Ī. I ended up writing my own model using MS Excel. I looked around and found a few web sites that provided some analysis of Roth conversions however it wasn't clear to me how they worked or what assumptions they made. I did some initial analysis to determine the effects of Required Minimum Distributions (RMDs) and it seemed that these could cause a fairly large tax bill. Some background: Most of our portfolio is in tax deferred accounts.
A bit of an introduction- I'm a "long time lurker" here on I just noticed some recent posts concerning Roth Conversion modeling that fits in with some modeling I've been doing about conversions from traditional IRAs (tIRAs)to Roth IRAs (Roth) accounts.
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