Modeling Large Roth Conversions
I would like to use ESPlanner to see whether making large Roth conversions that would put us in a higher tax bracket would result in an overall higher Standard of Living. My wife and I are both 63, and have been retired for 4 years. We have been making modest Roth conversions that allow us to remain in the 12% tax bracket.
I am wondering whether to boost our Roth conversions from now through age 70 to put us just below the 24% tax bracket ($168,400 in taxable income for 2019). That would be at a minimum $17,000 per person per year in conversions.
What I really want to see is the trade-off between 1) portfolio risk due to increased drawdowns to pay taxes, and 2) increased Standard of Living due to paying taxes at lower rates before RMDs and SS boost income to at least the 22% and perhaps the 24% federal tax brackets (or higher depending on whether/when the current tax law expires).
1) In order to accurately model the conversions, I must reduce Discretionary Spending (and thus taxable income) in ESP to a level that approximates actual spending. Right now, in economics mode with Monte Carlo selected and modest Roth conversions, suggested Discretionary Spending is about $32K more per year than our actual spending. How do I reduce DS to approximate actual spending?
2) Would I set Special Withdrawals at the smooth withdrawal amount plus the proposed Roth conversion amount for each spouse? Is there any way to direct ESP to fund the conversion taxes at least partially through liquidation of regular assets, so as to pay taxes at capital gains rates?
3) Any other settings/inputs that I should tweak to achieve the desired results?
Thanks for your help.