In 2015, we developed a Roth funding and conversion analysis algorithm. Currently, our process is to have the tax specialist model what we know about your situation. They use your most recent tax return, net worth, standard of living, and age to prepare your taxes each year until you reach age 100. This simulates your portfolio growing along with its accompanying dividends and interest. It models your standard of living, the effects of inflation, Social Security starting, and Required Minimum Distributions (RMDs) gradually increasing. It is just an estimate, but it is a good estimate.

Then, we start changing things in order to try to maximize your after-tax net worth. What if you did a Roth conversion to the top of your marginal bracket each year? Only for five years? What about the bracket higher? — and compare the scenarios both to the baseline and to one another in order to find the best plan. It is a manual process with a powerful tool. This program we’ve made runs the decades of analysis at lightning speeds. But setting up the model and trying everything we can think of still requires hours of work.

This Tax Planning service is currently available only as a premium service for our “Comprehensive” level clients.

On October 17, 2020, David Marotta gave a talk called “The Value of Systematic Roth Conversions” to the DC chapter of the American Association of Independent Investors (AAII). In the talk, he used examples from our tax planning service to demonstrate what a Roth conversion plan might look like and how systematic Roth conversions can create a higher after-tax net worth in the future.

You can listen to the full talk here. The talk is the first 44 minutes and listener questions begin at 43:25 minutes.

 

Optimizing Roth conversions requires sophisticated analysis. It isn’t just as simple as minimizing taxes paid. In the talk, David demonstrates how Roth conversions can be extremely valuable even if a client is always in the same tax bracket and how a client might save multiples of the value he is converting over the next three decades.

By default, our recommendation is convert something to Roth today, but with sufficient analysis an even better conversion plan may be able to be found. For those who do not have access to our tax planning service, we recommend using our four simple but effective conversion target calculations.

If you are interested in becoming a client, we would be happy to meet with you. Our prospective client meetings are free and it is easy to get started as a client.

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