Maybe not "painless." For me the problem was that I had no way to maintain a reasonable (to me) asset allocation while increasing the bond percentage in deferred, without painfully large conversions. I had already had nearly 100% equity in taxable (except for cash for spending) and Roth, but those were relatively small amounts, so my deferred (by far my largest total accumulation) was still mostly in equity. Reducing the equity in deferred (through conversions) from about 50% to under 10% had a significant effect on my assumed future deferred returns and therefore future RMDs, IRMAA, NIIT, and marginal tax rates. The problem was that with historically average growth, given the amount of equity I'd had in deferred pre-conversion, no "painless" amounts of conversions would have ever compensated for the compounded growth.A painless step is to hold your bonds in tax deferred to try to limit its growth. You can model that in Pralana by using Asset Allocation Mode 2, set at the top of the Financial Assets-Management tab.
It took me multiple re-reads to understand that your issue was that asset location optimization wasn't enough, your optimum plan also included Roth Conversions.
It's too bad that you didn't happen to gain as much as you might have wanted from asset location optimization, but it didn't hurt you, so it was indeed "painless" per my comment and is a completely separate action from Roth Conversions. Most tools don't allow you to model asset location optimization, so I mentioned how to do it in Pralana.
The idea for OP would be to still maintain the desired portfolio asset allocation, just put the bonds (with their ordinary dividends and slow growth) in tax deferred. That eventually tempers the growth of tax deferred, reducing the future tax burden by reducing future RMDS, IRMAA, NIIT.
Both location optimization and Roth Conversions are bites from the same tax optimization apple, but Roth Conversions are much more flexible and powerful - and painful - in having to come up with the cash to prepay the taxes.
Statistics: Posted by Exchme — Fri Aug 30, 2024 7:57 pm — Replies 22 — Views 1399