Not sure you are following my question. The recommended way to hold assets is to preferentially put bonds in tax deferred but hold portfolio allocation constant. Most tools do not do this, they have you input returns for each account. If you hold bonds preferentially in tax deferred, you would naturally enter a low return value for tax deferred. The result is absurdly high recommendations for huge Roth Conversions as the tool seeks to get money from the low return tax deferred to the high return Roth. It takes a lot of extra math for the program to keep allocations constant. From reading comments of other folks, I believe that only Pralana and the boglehead's RPM tool have the ability to do it right.Not unique to Pralana.My big need is to handle the relevant factors for Roth Conversions, as I understand it, other programs just don't do what I need. Competitor products are missing preferential placement of bonds in tax deferred while holding the portfolio allocation constant (the RPM spreadsheet is the only other tool I know of that does that) and that takes into account capital gains on asset sales - those get worse as you do Conversions and other tools don't track it. I also stress test Roth Conversions in bad historical times by selecting individual historical years and examining how things look with and without the Roth Conversion plan, something that is also unique to Pralana.
You can model Roth conversions in both Right Capital and Projection Lab and see the resulting impacts. What is unique to Pralana are the Optimizers, that can tell you specific years and tax brackets to convert. It also shows IRMAA and other impacts besides portfolio balances.
RC has toggles to show impacts of Roth conversions, but not as much granularity as Pralana. PL is more trial-and-error, to see impacts but you can certainly model against any time period and even create customized future stock market returns. I use all three and each have advantages, but two are these are essentially one-man development shops.
And with that, I am finished on this topic.
The other gap I believe most programs have is less critical, but still important. If you use taxable money to pay taxes for Roth Conversions, you use up some of your assets with low unrealized capital gains and you reduce the amount of future dividend income you will get. Those effects mean that you will eventually need to sell assets with higher unrealized gains than if you hadn't done conversions. That reduces the benefit of the conversion. I believe Pralana is unique in tracking capital gains taxes on asset sales, other tools miss this effect and again overstate the benefit of conversions.
Statistics: Posted by Exchme — Fri Nov 15, 2024 6:15 am — Replies 200 — Views 17340