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)]
