Roth Conversion Data Entry

Each of the features prompts for the Roth Conversion data entry are discussed below

Personal

Client's date of birth

This is used for calculating any RMDs from the IRA account.

Roth Conversion Options

Amount for Roth Conversion

Enter the value of the pre-tax qualified plan. If the client is required to take a RMD this year and has yet to take the distribution, reduce the account value by this value.

Non-deductible IRA Balance

Enter the non-deductible balance (non-taxable balance) of the IRA account.

Number of Years Until Distribution

Enter the number of years until the distribution of the funds, i.e. number of years to run the illustration.

Roth Conversion Bonus

Enter the bonus value for the Roth account.

Note: This is available if the Show Roth Conversion Bonus option is checked in the Calculation Config in the docking panel on the right.

Conversion Time Period

Enter the preferred conversion time period option.  This can be done in a single year, over a number of years or an amount per year.  If a number of years or an annual amount is selected, additional values for the number of years or the annual amount to convert will be displayed.

Federal and State Marginal Tax Bracket

Taxes Paid By

Select if the taxes are to be paid by a Non-qualified account or from an IRA Account Distribution.

Note: This prompt and the next prompt are only available if the Allow Taxes to be Paid by IRA Conversion option is checked in the Calculation Config in the docking panel on the right.

Account owner is at least 59½ at conversion and is not subject to a 10% penalty.

Check this box if the client is not subject to a 10% for pre-59½ distribution.

This prompt is only enabled if the taxes for distribution are being paid by the IRA Account distribution.

Client's Federal Adjusted Gross Income (AGI) for Tax Year is Known

If the client's adjusted gross income (AGI) is known for the conversion year, check this box.

Hint:A Roth conversion may increase a client's marginal tax bracket from their current bracket into a higher bracket. If the client's AGI is known, the software will automatically calculate the taxes in the higher bracket(s).
Note:The next two prompts are only enabled if the Client's federal adjusted gross income (AGI) for tax year is known prompt is checked.

Federal Tax Table

Select the federal tax table for the client. This prompt is only displayed if the prior box is checked.

Annual Increase in Tax Table

Enter the annual increase in the federal tax table. The tables are typically indexed to inflation. This prompt is only displayed if the prior box is checked and this is a multi-year conversion.

Current Calendar Year Adjusted Gross Income (AGI)

Enter the AGI for the current year. This prompt is displayed if federal tax tables are being used and this is a multi-year conversion.

Annual Increase in AGI

Enter the increase in income each year. This prompt is only displayed if federal tax tables are being used and this is a multi-year conversion.

Marginal State Tax Bracket

Enter the marginal state tax bracket for conversion. Note that if the state uses a progressive tax table, a conversion may push a client into a higher tax bracket. This must be considered when entering the Marginal State Tax Bracket. This prompt is displayed if federal tax tables are being used.

Federal and State Marginal Tax Bracket for Conversion

If the Client's federal adjusted gross income (AGI) for tax year is not checked, this prompt will be enabled. Enter the combined average marginal federal and state tax bracket for a Roth conversion. Note that a conversion may increase a client's immediate tax bracket, and this should be taken into consideration. This prompt is displayed if federal tax tables are not being used.

Marginal Federal and State Tax Bracket for Distribution

Enter the combined marginal federal and state tax bracket at distribution. This is used for comparing the future Roth account balance with the future IRA after-tax balance. It should be taken into consideration that in the case of an IRA account, the distribution may be made over any number of years and may not increase the client's marginal tax bracket.

Rates of Return

Qualified Plan Rate of Return

Enter the rate of return for pre-tax plan.

Roth IRA Rate of Return

Enter the rate of return for the Roth IRA. Normally this would be similar to the qualified plan rate of return.

Non-qualified after-tax rate of return

Enter the rate of return of the non-qualified after-tax account. This is often lower than a rate of return for a qualified plan.