Personal Investments • Re: TIPS ladder when have “enough”

Let me go at a detail in the OP - I think your Roth Conversion calculator may be lying to you about it being right to convert the entire t-IRA balance. There is a common shortcoming in many programs that result in people unintentionally messing up their plans and converting too much.

It occurs if you are holding different asset allocations in different accounts. Most programs holds those asset allocations (or the resulting rate of return) constant for each account over time. But that means they fail to hold your portfolio asset allocation constant. They end up showing that the faster you do Roth Conversions, the quicker the program sees money getting out of the "low return" t-IRA and the faster it gets into the "high return" Roth. But of course an investment doesn't change its return because of the account it's held in. The result is the Roth Conversion recommendation can become bizarrely high. You can only use such programs if you hold the same allocation in all accounts.

Also, having some balance in a t-IRA is not a bad thing if you want to do QCDs, specify charitable bequests or have a reserve for long term care (which would be tax deductible, so a low cost way to get the money out).

I deliberately set the program to assume the exact same rate of return for all accounts to avoid the problem you warn about.

I am running the MaxiFi Roth conversion calculator. No matter what scenario I run, it always tells me to convert the entire IRA over a period of years. I've run scenarios assuming very large long-term care costs and large (partially tax-deductible) buy-ins to an expensive CCRC.

As you suggest, I probably will not convert all of the IRA, as I will probably use some of the IRA for a charitable gift annuity.

I'm also planning on a charitable gift annuity using appreciated stock in my taxable account. Since my goal is peace of mind, I think an annuity is the best answer for me.

Statistics: Posted by murrays — Thu Dec 05, 2024 9:17 am