Financial planning tools and services to put you on the path to the future you want
Your guide to financial planning and retirement
Connect with peers and experts
Get to know the people behind the company and the mission behind the work
Offer financial wellness to the people at the heart of your business
October 18, 2023
The decision to save into a Roth account or to convert money from a traditional IRA or 401(k) into Roth savings is not straightforward. There are a large number of criteria to consider and ultimately, your decisions about Roth strategies will come down to what is right for you and your goals, the assumptions you make about your future, and your current and future income and investments.
There are rules of thumb for making decisions about Roth strategies, but here we want to show how you can use the Roth Conversion Explorer (a tool inside of the NewRetirement Planner) to make more informed and personalized decisions.
The NewRetirement Planner is a system that puts the power of financial planning into your own hands. It has a very unique tool, the Roth Conversion Explorer, that is designed to help you identify the amount and timing of Roth conversions over future years.
The Explorer is hugely powerful, running a “greedy-type” algorithm to determine Roth conversion strategies that meet the goals and parameters that you define in the tool and in your overall financial plan.
Here are 7 tips to help you get the most out of this tool:
Make sure the scenario you are using (you can run the Explorer on any of your scenarios) is accurate and up to date. If the data in your plan is not accurate, you will not get good results. Pay particular attention to:
First, know that the Roth Conversion Explorer is going to ignore any Roth conversion strategies you have currently modeled in your NewRetirement Plan.
Then, make choices for what you want to model.
What is your conversion goal? Do you want the tool to figure out how to:
How do you want to fund the taxes you will owe for the conversion? You have the option to tell the tool if it is okay to pay for the tax liability of the suggested Roth conversions with converted funds or not.
We strongly suggest that you play with the Explorer using the parameters to the left of your results. Use the different criteria being presented and see how they impact your suggested conversions.
You may get very different results as you click around. But, mostly importantly, you may learn a lot through this exploration.
NOTE: Be sure to assess optimistic, average, and pessimistic forecasts on conversions: You can’t predict the future, but it is important to understand various future possibilities and to assess how your conversion strategies might be impacted by rates or return and inflation. The Roth Conversion Explorer provides toggles for optimistic, pessimistic and average forecasts.
You will also probably want to adjust your scenario’s tax bracket, longevity age and other criteria listed above in Tip 1 and rerun the Explorer to see the impact of those criteria on your results.
The Explorer presents really rich results that are worth digging into. You can see:
You will also get the following charts and data tables.
Toggle between your current plan and the plan with suggested conversions to see:
Additionally, you can explore a comparison of:
This version of the tool does not help you assess everything that may be a factor for your Roth conversion strategies. The higher income that Roth conversions will trigger may trigger higher costs.
A few examples of costs that may rise with higher income include:
ACA: If you are getting insurance through the Affordable Care Act, then higher income may mean that you will lose valuable healthcare subsidies. The Planner does not currently model ACA subsidies so these are not considered by the Explorer.
College Costs: Beware if you are hoping to fund college costs. The higher income from the conversions may mean that you are eligible for less aid.
You may not want to do conversions in years where you are subject to these costs.
Depending on your circumstances, the Roth Conversion Explorer may recommend anywhere from zero to 10 or more conversions.
The tool does not currently enable you to apply the suggested conversions directly to one of your scenarios. (It is something we are working on.) And, we realize that entering a large number of conversions one by one is onerous.
However, it may be important to model the Roth conversions you are contemplating and stress test your plan (e.g. by switching to pessimistic assumptions).
It is important to remember that the suggested Roth conversion strategies are based on the details that are in your plan today and that your personal circumstances, economic conditions, and even tax laws (NewRetirement actively updates tax rules in the Planner) will likely change in the future.
As such, you will want to use this tool over time and be ready to evolve your plans over time.
Future Roth conversions and figuring out what to convert and when is a hot topic and a great way to reduce what you’ll pay in taxes over your lifetime. However, there are additional Roth questions to answer. Here are a few additional things to try if you are interested in Roth strategies:
If you are still accumulating assets, you may be asking yourself whether you should be saving into a Roth account, traditional savings, or both.
While there is never going to be one right answer, there may be an answer that is more right for you.
In the NewRetirement Planner you can run “what if” scenarios to help you decide how to save. You can apply future contributions to Roth in one scenario and to traditional savings in another scenario and do a full scenario comparison to assess future wealth, returns, tax liability and more.
In the Planner, you can try out any individual Roth conversions in any future year and again, assess the financial ramifications across a variety of plan metrics.
The NewRetirement Planner is a forward looking projection tool. It won’t tell you about conversions for the current year.
If you want to know how much you should convert to a Roth in 2023, you may want to try out the 2023 Roth Conversion Calculator to help you see all the various tax implications of Roth conversions this year, including IRMAA.
—> Go to NewRetirement to use rich Roth functionality that is part of the comprehensive Planner
–> Find the 2023 Roth calculator here: https://www.newretirement.com/retirement/roth-conversion-calculator/
Do it yourself retirement planning: easy, comprehensive, reliable
Take financial wellness into your own hands and do it yourself retirement planning: easy,
Share this post:
Roth conversions are a hot topic. Let’s make sure that the basics are covered: Find out what they are, how they work, and when or how to use them.
Planning for the future should involve strategizing to minimize taxes. Explore 25 tips to help you plan, do retirement tax filings, and save money.
Doing a Roth conversion — also known as a “backdoor Roth IRA” — is perhaps even more appealing in 2018 than ever before. Why? Low 2018 tax rates. What is a Roth Conversion? Backdoor IRA? A Roth Conversion is when you convert money that you have in a traditional IRA to a Roth IRA. This…
Our weekly newsletter full of inspiration, podcasts, trends and news.
© 2023 NewRetirement, Inc. All rights reserved.
Disclaimer: The content, calculators, and tools on NewRetirement.com are for informational and educational purposes
only and are not investment advice. They apply financial concepts in a general manner and include
hypotheticals based on information you provide. For retirement planning, you should consider other
assets, income, and investments such as equity in a home or savings accounts in addition to your
retirement savings in an IRA or qualified plan such as a 401(k). Among other things, NewRetirement
provides you with a way to estimate your future retirement income needs and assess the impact of
different scenarios on retirement income. NewRetirement Planner and PlannerPlus are tools that
individuals can use on their own behalf to help think through their future plans, but should not be
acted upon as a complete financial plan. We strongly recommend that you seek the advice of a financial
services professional who has a fiduciary relationship with you before making any type of investment or
significant financial decision. NewRetirement strives to keep its information and tools accurate and up
to date. The information presented is based on objective analysis, but it may not be the same that you
find on a particular financial institution, service provider or specific product's site. All content,
tools, financial products, calculations, estimates, forecasts, comparison shopping products and services
are presented without warranty.