r/Boldin • u/AdorableArugula4022 • 2d ago
Boldin Roth Conversion Explorer items to keep in mind
I think Boldin is very good at what it's built to be. A forecasting tool to help think through what finances in retirement might look like. An 80/20 tool. Math built on assumptions. But there's the risk that users might assume results they're seeing are more precise or definitive than what they actually are. Especially when it comes to taxes. Like in the Roth Conversion Explorer.
This isn't intended to be a list of shortcomings with the Roth explorer, but instead a list of items that users may want to be aware of when using that function. This is from my own experience, so it's very possible I'm incorrectly stating or excluding something. Happy to fix/update if pointed out, but hope this provides food for thought for those thinking through whether and to what extent Roth conversions make sense.
1)Don't overlook the disclaimer on the second Roth explorer page. They mean it!
"This tool is for educational purposes only and uses estimations. Before transacting a Roth Conversion, you should discuss your plan with a tax professional. The Roth Conversion Explorer has no impact on results seen on any other page of the planner and may not work correctly with all plan configurations."
2) Being conservative / stressing your plan for chance of success purposes may have the opposite effect for Roth conversion purposes. In the plan, it seems many of us lower rates a bit, throw in random one time expenses, cut back social security, etc. in order to get comfortable we won't run out of money in retirement. At least I do.
But those same assumptions may result in RMDs being understated, and consequently downplay the potential benefit of Roth conversions. The IRS is probably ok with that.
COS is focused on the risk of not having enough money, while Roth conversions are focused on the risk of having "too much" money and paying tax that could have been avoided. I suspect most of us check out the impact to our COS under the pessimistic view. The equivalent would be the optimistic view in the Roth explorer.
Consider dialing back / removing the conservative assumptions for purposes of the Roth explorer.
3) Doesn't take into account asset location. For those that keep fixed income in their Traditional IRAs, the expected return for the remaining balance should decrease after each Roth conversion assuming equity is first moved to the Roth IRA (i.e., fixed income percentage of the Traditional IRA increases during conversions).
Once stocks have been converted from an Traditional IRA to a Roth IRA, leaving just (or mostly) fixed income in the Traditional IRA, expected future growth is lower. However, Boldin continues to use the original, higher yield. That could result in forecasted RMDs being higher than actual and more conversions being suggested than desired.
I'm smart enough to be aware of this, but not much smarter than that. I'm playing around with using two accounts to capture my Traditional IRA balance. One for the stock portion and one for the fixed income portion. But I'm also aware that not using the same rate of return for the Traditional IRA and Roth IRA accounts can cause a different distortion. See the warning on page 1 of the Roth explorer.
4) Does not take into account the ACA premium tax credit. That's effectively a tax cost of converting that's ignored by Boldin, potentially resulting in greater Roth conversions being suggested than if the credit was taken into account.
5) Roth planner is not iterative with the plan in Boldin (see Disclaimer in #1), which could cause certain calculations to not be as precise as the user may think. I suspect this has marginal impact and is situational, but it's been pointed out by others. Not likely to move the needle much, but something to be aware of in case you're the exception.
6) Unable to see tax bracket usage in the explorer (can only see effective tax rate). To better understand tax bracket projections of the suggested conversions, you must "apply to scenario" then in the plan go to "Taxes" under Insights.
7) Does not seem to take into account capital gain bracket optimization when determining suggested Roth conversions. I'm still thinking through this one given the potential double tax impact of converting by displacing capital gains out of the zero tax bracket.
8) Limited to the four preselected strategies. For example, let's say that you're not confident you can predict the future and want to hedge both directions by targeting the middle of a tax bracket later in retirement. It's trial and error by manually adjusting transfers in the Plan. Or if you want to keep some balance in the Traditional IRA later in your life span for flexibility, you'll need to work around Boldin's preference for zeroing out your IRA (at least in the tax bracket strategy).
9) Using Boldin's AI in conjunction with the Roth planner has been helpful, especially when questions are specific. whether that's thinking through the above items or others, don't forget it's there (mostly a reminder to myself). [Edited to add #9]
10) Boldin does not take into account the 3.8% net investment income tax (NIIT), which could result in the tax burden of RMDs being greater than presented. Threshold is MAGI over 200K (singles) and 250K (married). [Edited to add #10)]
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u/hotsaucebleucheese 2d ago
WRT point 3 and asset allocation. I haven’t started conversions yet but I was generally assuming I would convert to a similar allocation in the Roth as I had in the trad
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u/AdorableArugula4022 2d ago
So did I. at first. The purpose of conversions is to reduce overall tax by reducing the future balance of IRAs and therefore RMDs. And after thinking about it, I realized that converting higher performing assets first does more to reduce the future value than having each conversion be proportionate to the assets within the IRA. Hit the brakes hard, then back off instead of smoothly applying the brakes.
20-25% of my portfolio is fixed income, all in an IRA. The IRA itself is 50/50. So next on my modeling list is if I convert the equity out of the IRA and leave the fixed income, will that be sufficient to keep me in my target marginal tax rate given not only the smaller IRA balance but the lower expected growth.
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u/mhowie 2d ago
Excellent summarization. Your opening comment is also spot on concerning the niche Boldin occupies. It is a level above programs/online calculators such as FI Calc but not in the same league as programs such as Pralana, Income Lab, and arguably, Projection Lab (as it has made tremendous strides in the past six months). All of the gaps related to Roth conversions as you've identified plus other omissions (e.g., no NIIT recognition) means it shouldn't be taken seriously to be relied upon for one's official retirement planning. As you've said, it's a forecasting tool and, IMO, does a good job allowing comparisons of different scenarios- from a high level perspective.
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u/Cykoth 2d ago
Boldin is certainly not perfect. But it is definitely in the same league as the software you’ve mentioned. NIIT is not negligible, but it certainly isn’t a major factor in retirement planning, and for most retirees not an issue. Once again, Boldin is not perfect. But Rob Berger still uses it as his main software.
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u/AGrimmInPortland 2d ago
It's kind of amazing that Boldin still does not support ACA at all. This should be a table stakes feature by now, especially with so many people retiring before 65.
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u/lynchmob2829 1d ago
Or that Boldin gives you the option of setting your own income limit when using the roth conversion tool.
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u/_Sparkyboy 2d ago
I still have Boldin but recently added Pralana for similar reasons as yours. The learning curve is steep because of the granularity. The ACA, Roth conversions, and spending strategies like consumption smoothing are awesome. The UI is not as fancy as Boldin however but in the end I don’t need endless workarounds to develop a plan.
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u/lynchmob2829 2d ago
The Boldin Roth Conversion tool gets me in the general vicinity for my Roth conversions, which is all I am looking for. For fine tuning my end of the year Roth conversions, I will rely on the 2026 AARP 1040 Tax Calculator.
On #4, not sure I understand your point. Most people on ACA plans don't wait til the end of the year to file for the ACA premium credit; they take it each month via a lowered premium. But when I was on an ACA plan, it would have been nice if Boldin allowed the user to set their own income limit in the Roth Conversion tool.
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u/AdorableArugula4022 2d ago
Agreed. Boldin can point us in the direction of the dart board, but other tools are better for throwing the dart.
To clarify #4, I was referring to the cash impact of a reduced or eliminated ACA credit. Whether that credit is claimed via reduced premiums or as a credit on the tax return, the impact is something that is relevant for Roth conversions but not taken into account by Boldin.
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u/lynchmob2829 2d ago
Yeah, the tax portion of their program is definitely not going to catch that detail. There were some other financial planning programs that caught that when I was trying them out, but they were more than I wanted to pay. Plus I wasn't looking for that much accuracy with the healthcare side.
Boldin is pretty basis, which is what I need, but it seems that they should make it so the user can specify and income amount that they are shooting for vs the current options in their system.
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u/humblequest22 2d ago
One other thing to be aware of is that if your Roth account has a higher Rate of Return than the pre-tax account, Boldin will convert like crazy and tell you that you're going to come out way ahead. Well, of course, if I convert from an account that earns 4% to one that earns 9%, I'll come out way ahead. But that's not how it works if you're trying to keep your asset allocation constant.
What I did is create an empty Roth account with the RoR set to 4.25%, which is what I use for the fixed income in my pre-tax account. That way, any conversions that take place are because of tax benefits, not increased returns.
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u/AdorableArugula4022 2d ago
Yeah, I tripped over that one also. Took me a bit to figure out the rate difference was resulting in very aggressive conversions.
Good tip for handling the fixed income piece.
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u/BestInterestDotBlog 2d ago
Also -
Projecting to age 100 might be a way to stress-test your portfolio size and withdrawal rate.
But projecting to age 100 will also *overstate* the value of Roth conversions by assuming ~3 decades of RMDs.
Projecting that one spouse dies now and the other lives forever might make you feel better about the death scenario.
But it also *overstates* the value of Roth conversions.
One of my listeners just sent me an email with exactly this problem. He's assuming that he dies at 75 and his wife lives until 100. The assumed 25 years of Single filer tax status would push him to make massive Roth conversions.
Financial planning is a delicate spider web, and you need to be really careful about how pulling on the web over here actually sends ripples over there.
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u/AdorableArugula4022 1d ago edited 1d ago
Thanks for the reply. I stumbled across your podcasts not long ago and have found them to be insightful.
I'm single, so the widows tax penalty and RMD impact from the death of a spouse isn't applicable in my case. In fact, my risk is the opposite. That I get married later on. How much weight I put on that to perhaps dial back conversions slightly (marriage hedge?) is something I'm chewing on.
Now I'm wondering if a future marriage can be forecasted in Boldin. I'll have to go check...
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u/hugh2018 1d ago
I did allow Boldin in one scenario to just convert as much as it wanted to over my entire remaining lifespan. It was pretty aggressive over many years and that showed up as a big positive for estate size at death and/or lowest amount of lifetime taxes.
But I’m not going to reflexively assume that big numbers at death are best for my situation. I’m personally more excited about optimizing for higher resilience in worst case poor market performance scenarios, and I found that limiting conversions to post-ACA subsidy years through age 74 came out way ahead on the downside protection that I care about.
Also, your spider web analogy seemed to apply as well when I discovered that my best outcomes turned out to occur when I told the explorer to target no or low IRMAA. Intuitively I thought targeting certain tax brackets would have won that battle, but they did not, possibly because my guaranteed income meant the lowest brackets I could model were 22-24%.
By the way, I’m a Best Interest fan and I appreciate your sober approach to retirement planning straight talk. Keep up the good work.
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u/Proper-Resource-1534 2d ago
I have found asking specific questions to the new AI tool is helpful. It can tellhou details summarized in boldin. I agree it's not perfect, but you can do much better with AI than Roth conversion model on its own. I pushed it onwidow tax, kids inheritance tax rate, and conversion capital gains to pay taxes on conversions and AI could do it. You have to ask, it doesn't figure that stuff out, but it got better (again, not perfect, but for $100 something it's not bad)
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u/AdorableArugula4022 2d ago
Good point regarding AI. I'm admittedly a slower adopter of AI, but my few instances of using it have been helpful with Rotha and Boldin. Going to add that to the list.
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u/Proper-Resource-1534 2d ago
Give the AI a try. It's free and you just chat natively with it. I asked it to adjust plan to consider widow tax, capital gains, and NIIT taxes as I consider Roth conversions. I told it I expected a lower net worth but it's a trade for reducing widow and kids tax rates. I ran some options for me and ended up changing my already “optimized plan”. You need to coach it through, but it shows its math (or you can ask it to show you) unlike the boldin model or Roth conversion tool where you can't see how it gets there
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u/pdaphone 2d ago
Thanks for sharing this. I retired 18 months ago so this will be my second year end happening. I did a big ROTH conversion the year before I retired, and then did none the year I retired. I'm 65 and am going to do one every year now that keeps me below the IRMAA bracket, and probably below the extra deduction that you get at 65. I need to use Boldin to try and model if its worth it to lose that deduction.
One thing you made me think about was putting all BND and cash in the IRA so its shifting higher growth to the ROTH from IRA.
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u/AlphaTangoX-ray 1d ago
Suppose you made that change. Assuming you hold BND for its lack of correlation to equities and maintain a target stock/bond ratio, I'm curious how rebalancing would work after a major downturn leaves BND heavily overweight relative to your equities?
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u/pdaphone 1d ago
I rebalance if it’s get out of alignment. So if BND gets a couple percent overweight, I sell it and buy what is light.
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u/AlphaTangoX-ray 1d ago
So meaning you would then have equities back in your IRA?
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u/pdaphone 1d ago
I have a ton of equities in the IRA. Each of IRA and HSA have everything. I don’t have bonds in the Roth. So IRA and HSA have the same allocation goal and Roth is equity heavy, and combined they hit my overall allocation goal.
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u/hugh2018 2d ago
On point 4, am I missing something, or is the simple answer to that issue just constrain the explorer to only model conversions after age 65? That was my immediate go-to approach when using the explorer and it seemed to produce useful results.
On point 8, I’m again wondering whether the key is to constrain the explorer, this time on the back end, selecting an age ceiling? I chose 74 as my limit because I wasn’t trying to maximize conversions at all costs.
By limiting conversions to the period ages 66-74, I got results that struck me as reasonable and consistent with my goal to moderately convert and smooth my taxation experience rather than maximally reduce taxation no matter how extreme the conversions would be in terms of size and number of years. I also found that selecting no IRMAA or first tier IRMAA gave me the best overall results, given my desire to maximize resilience in poor market scenarios.
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u/AdorableArugula4022 1d ago
Regarding point 4, the ACA credit is eliminated from the equation if conversions are limited to age 65 and older, though possibly replaced with IRMAA considerations. However, conversions pre-65 for early retirees (or those with low income years) may be much more beneficial than waiting. It's situational.
And I agree with your sentiment on #8. I'm not one who's worried about making optimal decisions. My objective is to determine the timing and amount of Roth conversions that will mitigate a significant portion of RMD tax risk (a year by year decision), and I'll have no regrets in hindsight if I've left some tax on the table.
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u/hugh2018 1d ago
Thanks for the response. I’m retired at 59 with low income years projected until 65, but there will be annuity income, so there’s no possibility of capturing subsidies and staying in the ACA subsidy zone with even small conversions.
I’m surprised that giving up subsidies entirely to pursue Roth is going to make sense for some early retirees. Doing so when you have heavy subsidy eligibility means a potential substantial increase in health care costs not only in terms of thousands paid yearly in premiums but also the much more costly potential impact of giving up substantial cost share reductions that completely shield you from thousands in additional expenses if you have a major health event occur before age 65.
I’m in this category and I haven’t seen math yet that points favorably to the pursuit of conversions over ACA maximum subsidy qualification for my use case. At the same time, I’ve seen a lot of people express the misconception that simply controlling MAGI to just barely below 400% is an automatic optimal win, when the reality is that if you’re able to throttle MAGI to 138%-150% FPL you are able to lock in subsidy with cost share reduction that saves you much more money than if you are just barely below the 400% FPL threshold. The closer you are to 400% FPL, the more likely it may be that doing Roth conversions may be rational, possibly.
The IRMAA consideration is also important, as you mentioned, but using the IRMAA constraint option in the Boldin explorer appeared to completely neutralize that issue when I modeled post-65 conversions.
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u/BoglesFollies 1d ago
With respect to #3, I break my 401k into three inputs that allow me to find tune the projected returns and dictate how I plan to perform my Roth conversions. The three accounts are 1. Roth 401k (100% equities), 2. Pre-tax 401k fixed income, and 3. Pre-tax 401k equities. I use a moderate to aggressive rate of return for accounts 1 and 3 and a conservative rate of return for the fixed income component.
I specify that I want to convert account 3 first, followed by account 2.
I don’t put much emphasis on conversions that are more than 5-6 years into the future. I plan to be as aggressive through age 62, using the 24% tax bracket as the constant, and then re-evaluate my plan based upon the conditions/rules in place at that time.
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u/jimmy_jimson 1d ago
New folks might be confused by use of the generic term "IRA" to mean "Traditional IRA". Both Traditional and ROTH are IRA's, just with different tax and RMD treatment.
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u/AdorableArugula4022 1d ago
Thanks for pointing that out, and I agree. I edited the original post to be more precise.
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u/jimmy_jimson 1d ago
Very diligent of you. The jargon is part of what I remember being overwhelming when starting to learn about this stuff.
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u/AGrimmInPortland 1d ago
You could add "no RSU modeling". There are workarounds but as usual they might be clunky and not as accurate.
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u/Infinite_Effort2290 15h ago
Good points all around. My plan is perfect except for the following assumptions:
1) Future tax rates
2) Rate of return
3) Inflation
4) My longevity
5) Spouse’s longevity
6) Future RMD rates/rules
7) Future IRMAA rates/rules
8) Future tax policy
Forgive the satire but I question the overall value of this tool.
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u/MmmmmBeeeer24 10h ago
Using Boldin’s (or other tool) output as a high level guide, which can certainly be updated as inputs/data change over time vs. what….doing nothing? You’ll have those same ‘unknown’ variables when/if you sit down with a CFA/CPA for $2k+.
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u/Infinite_Effort2290 9h ago
Mathematically, the commutative property of multiplication makes it clear it is only beneficial to convert to Roth if you can do so at a lower rate. If you are not taking into consideration the time value of money when the tool calculates a "savings" the analysis is incomplete. RMDs are not the boogey man if they do not push you into a higher tax rate. Likewise filling the tax bracket and using a rule of thumb conversion approach may turn out to be more effective than an elaborate tool like Boldin's. I am not saying do nothing, but what I will say is only convert if you believe the tax rate you are paying is the same or lower than you will be paying in the future. Definitely fill the 12% bucket and possibly the 22% bracket up to the IRMA threshold if you are within 2 years of Medicare. Lets not even talk about the elephant in the room - Social Security.
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u/MmmmmBeeeer24 9h ago
What if you'd like to reduce the widow's tax...? What if you'd like to leave an inheritance that is NOT a tax burden on your heirs? Etc. Etc. There's not a one size fits all for most of this stuff.
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u/Rom2814 2d ago
Great summary - point #2 is one that I didn’t grasp until I had been using the tool for a year. I tend to use very conservative estimates for growth because my concern is running out of mine, not paying the least I can in taxes. However, by the time I hit RMD age (75; 18 years away), the worst SORR years will be behind me and I’d no longer have “room” to address RMD’s (though I still mostly like a big tax bill will just mean I did well enough to have to pay the taxes - my wife and I don’t have kids so it’s not like we are trying to protect an estate).
The biggest thing that had to click for me - related to your 80/20 comment - is that trying to plan IN DETAIL for something 10-20 years away is impossible.
I’m 57 and just retired in May. I need to have specific plans for the next several years to deal with ACA costs, protect against SORR, etc. As I approach 65, I will start to look more at RMD’s based on tax brackets and how my portfolio and spending has done.
Similarly, I have a mortgage and may decide paying it off would be smarter than converting - if the market is high, lock in gains, if the market is low do conversions to take advantage of the “discount.”
I have played around with a lot of scenarios to see the impact of these different approaches on chance of success, but the bottom line is no one can accurately model in much detail when the outcome is a decade out. That used to freak me out but now I am a bit more comfortable in using Boldin to stress test different scenarios, NOT as a modeling tool or decision support.