This article walks through how to model an IRA to Roth IRA conversion in SIPS Advanced for a client in the early years of retirement. First, we will point out the important numbers to track, replicate the scenario, model the IRA to Roth IRA conversion, and then compare the results. The goal of this strategy is to keep the client's effective tax rate near its working year level before the RMDs begin and reduce the RMD amounts so they more closely align with the client's after-tax income target. All steps begin from the Structured Income Planning landing page.
The hypothetical client that is used throughout this article is configured with the following parameters:
- Current age: 64
- Retirement age: 67
- Social Security start age: 70
- RMD start age: 75
- After-tax target income: $85,000/year
- Inflation factor: 2%
- IRA-to-Roth transfers: $100,000 in years 5 and 6; $50,000 in years 7 through 11
Related Articles and Sections: How to Model Roth Conversions in SIPS, Edit or Add Scenarios, Cash Flow and Tax Advisor
Step 1: Approx Income Tax Column: Take note of the percentage amount for the effective tax rate for the years while working (16%). Our goal is to keep the effective tax rate around this number after they stop working and before they take out their RMDs. 
Step 2: After Tax Target Column: Take note of this column. Our goal is to have the RMDs be closer to this amount. 
Step 3: RMDs Column: Take note to the RMD column. Our goal is to have this amount closer to their after-tax target income. 
Step 4: Edit or Add Scenario: Click on the green Edit or Add Scenario underneath the Structured Income Planning heading. 
Step 5: Replicate Current Scenario As Textbox: Click in the Replicate Current Scenario As textbox to bring up the current scenario. Clear the existing title and enter a name for the new scenario. 
Step 6: Replicate Current Scenario As: Click the green Replicate Current Scenario As button to confirm the new scenario name. 
Step 7: Scenario: SIPS will automatically process this request. In the scenario dropdown menu, the new replicated current scenario should automatically be the one you are viewing. 
Step 8: Save: Click on the green Save button underneath the Manage Scenario heading. 
Step 9: Display Options: SIPS will automatically take you back to the Structured Income Planning page. Click on the green Display Options underneath the Structured Income Planning heading. 
Step 10: Return With Grouping: Click on the green Return with Grouping button. 
Step 11: Add Account: SIPS will automatically be taken back to the Structured Income Planning page. Click on the green Add Account button underneath the Structured Income Planning heading. 
Step 12: Account Name: Enter in a name of the account. (ROTH IRA) 
Step 13: Hypothetical Return: Enter a hypothetical return for the account. (5%) 
Step 14: Tax Calculation Option: Select the Do Not Tax (ROTH) option. 
Step 15: Account Type: Select ROTH for the account type. 
Step 16: Annual Fixed Savings: Click on the radio button for Annual fixed savings. 
Step 17: Annual Fixed Savings Textbox: Enter the monetary amounts. (years 5 and 6 amount $100,000) 
Step 18: Income Data: Click on years 5 and 6.
Step 19: Pick Year(s): Click on the green Pick Year(s) button. 
Step 20: Income Data Table: SIPS will automatically filter the phrase “savings” and entered dollar amount. 
Step 21: Save: Repeat steps 16 through 19 for the years 7 through 11 with the annual fixed savings amount $50,000. Click the green Save button underneath the Manage Account heading.
Step 22: Manage: SIPS will automatically take you back to the Structured Income Landing page. Click on the green Manage button within the Tax Deferred IRA Column. 
Step 23: Annual Fixed Withdrawal Radio: Click on the radio button for Annual Fixed Withdrawal. 
Step 24: Annual Fixed Withdrawal Textbox: Enter the monetary amounts. (years 5 and 6: $100,000) 
Step 25: Income Data: Click on Years 5 and 6. 
Step 26: Pick Year(s): Click on the green Pick Year(s) button. 
Step 27: Income Data Table: SIPS will automatically filter the phrase “fixed” and entered dollar amount. 
Step 28: Save: Repeat steps 23 through 26 for the years 7 through 11 with the annual fixed withdrawal amount $50,000. Click the green Save button underneath the Manage Account heading. 
Step 29: Structured Income Plan: SIPS will automatically take you to the Structured Income Planning page. Note the Approx Income Tax column, the Accounts Total column, the RMD column, and all the totals. You will compare these to the original scenario in the next step. 
Step 30: Scenario: Switch to the before scenario for the IRA conversion. 
Step 31: Comparisons: In this example, the After scenario reduced the hypothetical client's Approx Income Tax by $287,770 ($1,273,933 - $986,163), increased the Accounts Total by $198,668 ($3,721,568 - $3,522,900), and brought the RMD amounts closer to the after-tax target income. When you run this comparison yourself, look for a lower Approx Income Tax total, a higher Accounts Total, and reduced RMD amounts relative to the original scenario.
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