I want to model converting part of my traditional IRA to a ROTH IRA. Here is what I did is this the preferred approach?
1. In the "Retirement Accounts/Special Withdrawals" window I entered an amount to be withdrawn from my IRA this year 2015.
2. In the Retirement Accounts/Contributions window I entered the same amount minus my RMD for 2015 as a ROTH contribution in 2015. I had to increase my age of last contribution to this year's age in order for the program to accept the ROTH contribution
Will this approach provide an accurate result?


Depending on age and earned income status, you may qualify for ACA credits towards health insurance. As such, you may want to include that in the model. I believe but may be wrong but 401K shows up as earned income and decreases the ACA credit. Until the program automatically manages this, it is messy. Nick

dan royer's picture

In your step one, you will withdraw the funds from IRA with tax consequences. In step two you get them into the ROTH. And you are already aware that you can't convert money that is required minimum withdrawal.

I believe that ROTH money might not be available for withdraw for five years, but I'm not positive of that.

But yes, that looks like the right approach to me.

Hi Dan, Thanks for the input. Since I'm not considering converting my entire traditional IRA the MRD doesn't really enter into the analysis. Example: If I have a $100k IRA I would need to take $4545k from IRA this year. that would leave $95455 in the IRA. I can then convert $50k and only pay the taxes this due to this additional income.
You are partially correct concerning the 5 year restriction on withdrawals. I believe the 5 years only applies to income earned - dividends, asset appreciation - in the ROTH. I hope I'm correct that any money contributed can be removed at any time without restrictions. Can someone confirm?
I assume that ESPlanner performs a smooth withdrawal on the ROTH funds if no special withdraw has been entered.
In the IRA to ROTH profiles I've run it seems that the program is including the ROTH withdrawals in taxable income. In one case, Adjusted Gross Income is 0.1% less than Total Income. In this case, annual ROTH withdrawals are 3% of total income. Also there is NO tax free income.
Can you please verify that ESPlanner is NOT taxing ROTH withdrawals?
Since all retirement withdrawals are combined in one column it's very difficult to see what is actually happening.

dan royer's picture

I'm sure ESPlanner is not taxing ROTH withdrawals. For example, I just created a case where I moved all retirement assets to ROTH and see 0 tax compared to substantial tax when I move them back to 401K. Yes, the ROTHs also are withdrawn smoothly, but after (or before) the rest of the retirement assets depending on your setting.

Well Fargo site:
Your time horizon. Generally, if you will need the funds within the next five years, a Roth IRA is not a good choice. This is because a five-year waiting period is required before you can withdraw earnings income-tax and penalty-free. The longer the assets in the Roth IRA can be left untouched, the greater the benefit of tax-free accumulation.

Schwab site:
With a Roth, contributions are not tax-deductible, but earnings can be withdrawn income-tax-free if you're at least 59½ and have had the Roth at least five years. And you don't need to take required minimum distributions (RMDs) starting at age 70½, as you do with a traditional IRA.

Yes, it's hard to see (or impossible to see) exactly when the ROTH withdrawals begin because, as you say, it's all dumped into one column. I can ask Darryl how hard this is to put in a sep column. The question has been asked before.

Both do say "earnings" so what you say seems right.

@Dan: "Yes, it's hard to see (or impossible to see) exactly when the ROTH withdrawals begin because, as you say, it's all dumped into one column. I can ask Darryl how hard this is to put in a sep column. The question has been asked before."

If Darryl's going to consider that issue, please consider the possibility of reporting Individual and Employer types separately, as well. In the special withdrawals tab one is required to specify which account type the special withdrawals are from. But, since you can't see the distinct balances, the actual withdrawals in the reports sometimes don't match because there's insufficient balance in the specified type.

You can know that only when the reported withdrawal is less than you specify. At that point you have to change the withdrawal to come from the next account type in the withdrawal order, assuming there's a balance remaining there (which you can't see).

Alternatively, add a column to the special withdrawals form that allows ESP to automatically shift the source to the next type specified in the withdrawal order, when the first type is exhausted.


I would also love to see this enhancement. With respect to retirement withdrawals, it would be very helpful to see when money runs out in one type of tax deferred account before withdrawals begin in another. Hopefully, this won't be too difficult.

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