How do I model a Roth conversion in PortfolioPilot, and when does it make sense?
A Roth conversion means moving money from a traditional IRA or 401k (pre-tax) into a Roth IRA (after-tax). You pay income tax on the converted amount in the year of conversion - but from that point on, the money grows and can be withdrawn completely tax-free.
It tends to make sense when:
- You're in a lower tax bracket than you expect to be in retirement (e.g. early retirement years before Social Security, or a year with large deductions)
- You want to reduce future Required Minimum Distributions (RMDs) from traditional accounts
- You believe tax rates will be higher in the future
- You have time for the converted money to compound tax-free for many years
It may not make sense when:
- You're currently in a high tax bracket and expect a lower one in retirement
- You don't have cash outside the IRA to pay the tax bill - using IRA funds to pay the conversion tax reduces the benefit
To model a Roth conversion in PortfolioPilot: go to Plan → Retirement Planning → "Taxes & withdrawals" tab → "Roth strategy" section → click "+ Add Roth conversion". Enter the date range and conversion amount. You can add multiple conversion entries to model a multi-year strategy and see the projected impact on your retirement success probability.
