Roth Conversion Simulator User Guide

Whether you’re running your first simulation or fine-tuning a complex multi-scenario comparison, this guide explains exactly what each field does, where the data comes from, and how the calculations work. Download the full PDF for screenshots, or use this article as your searchable reference.

[DOWNLOAD ROTH SIMULATOR USER GUIDE PDF]

14-page guide with screenshots, step-by-step workflows, and field explanations

Produced by: FP Alpha | Version: October 2025 | Pages: 14

IMPORTANT: The optimisation tool solves for the mathematically optimal result, but the recommendation may not be realistic or practical for the client’s unique circumstances. Always review the optimised output against the client’s goals, comfort level, and tax situation before presenting. After determining a recommended conversion amount, model it in the Tax Projector for detailed near-term tax consequence analysis.

Section 1: Explanation of Inputs

Many inputs pre-populate from the client’s profile and uploaded tax return. Every field is editable. Accuracy here is critical — the output is only as good as the inputs.

Profile Inputs

Field	What It Does	Key Notes
Filing Status	Sets the tax brackets and thresholds for the entire simulation.	Ensure this reflects today’s status, which may differ from the uploaded return (e.g., recently married or widowed).
Current Age	Pre-filled from the client’s date of birth in the General Questionnaire. Can only be increased.	Only the primary client’s age is used. For couples with significant age gaps or MFS filers, create a separate profile for each individual.
Retirement Age	The age at which the simulator switches from pre-retirement to retirement taxable income.	Can be lower than current age (e.g., 68-year-old who retired at 63). At this age, the Supplemental Withdrawal After Retirement also begins.
Life Expectancy	The final year of the simulation. Growth stops and Client Max Benefit / Max Value to Heirs are calculated at this age.	Default is 99. Adjust based on health, family history, or client preference. Shorter expectancy compresses the benefit window.

IRA Inputs

Field	What It Does	Key Notes
Beginning Traditional IRA Balance	Combined total of all tax-deferred retirement accounts for client and co-client (Traditional IRA, 401k, 403b, etc.).	Exclude inherited IRAs. This is the pool from which conversions are drawn.
Beginning Roth IRA Balance	Aggregate Roth balance for client and co-client.	Include all Roth IRAs and Roth 401(k)s. This is the starting point before any conversions are modelled.
Investment Rate of Return	Applied to all accounts: Traditional, Roth, and the hypothetical taxable account.	Conservative range: 6–9%. This is a blended long-term rate across the entire portfolio.
Supplemental Withdrawal After Retirement	Annual amount needed from retirement accounts to cover expenses beyond RMDs.	If $0: only RMDs are withdrawn. If > $0: the tool takes the higher of this amount or the RMD. If RMD exceeds the supplemental amount, the excess is saved in the hypothetical taxable account.

Income Inputs

Field	What It Does	Key Notes
Pre-Retirement Income	Ordinary income used from current age until retirement age. Pre-filled from the uploaded tax return.	Not used if the client’s current age already exceeds the retirement age.
Pre-Retirement Income Growth Rate	Annual growth rate applied to pre-retirement income each year.	Most advisors use 3–5%. Higher for early-career, lower for late-career.
Retirement Taxable Income	Estimated annual income during retirement: taxable Social Security, pensions, annuities, dividends, interest, part-time work.	Do NOT include RMDs or supplemental withdrawals — the simulator calculates these automatically. Include only the taxable portion of each income stream.
Retirement Income Growth Rate	Annual growth rate applied to retirement income starting at retirement age.	Most advisors use 1–3%. Reflects COLA adjustments on Social Security, pension increases, etc.

Tax Treatment Toggles & Heir Input

Toggle / Field	What It Does	Key Notes
TCJA Sunset Toggle	ON: tax rates revert to pre-TCJA levels in 2026. OFF: current rates continue indefinitely.	Leave ON by default (this is scheduled to happen). Turn OFF to model an extension scenario.
Pay Conversion Tax from Outside Account	ON: taxes paid from external funds; a hypothetical tax account tracks the opportunity cost. OFF: taxes withheld from the conversion, reducing the net Roth amount.	Major impact on results. ON is recommended for most clients as it reflects the more common real-world approach. RMD taxes are always included in both scenarios regardless of this toggle.
Heir’s Tax Rate	Effective rate (not marginal) applied when accounts pass to heirs at death.	Default is 37% (conservative). Adjust to 20–28% if heirs are in lower brackets. This rate drives the Heirs Max Benefit optimisation goal.

Section 2: How to Model a Roth Conversion

Option 1: Manual Adjustment

Use this when the client has a specific conversion amount in mind or you want full control over the scenario.

Step 1: Enter all inputs on the Assumptions page and click Continue.
Step 2: Set the number of years to convert using the arrows or type the desired number. This is how many consecutive years the simulator models a conversion.
Step 3: Set the annual conversion amount using the slider or by typing. The percentage displayed shows the marginal tax bracket based on current income plus the conversion amount.
Step 4: Use the Fill Up Bracket dropdown to automatically calculate the maximum conversion that stays within a specific bracket. Select the target bracket from the dropdown.
Step 5: Set the kick-off age — the age at which conversions begin.
Step 6: Review the output preview at the bottom of the screen: Total Conversion Amount, Taxes for Conversion, Taxes for Distributions/RMDs, Total Taxes Paid, Client Benefit, and Savings to Heirs.
Step 7: Add a 2nd and/or 3rd scenario using the tabs in the upper left. Use the pencil icon to name each scenario (e.g., “Fill 24% Bracket” or “$75K over 5 years”).
Step 8: Click Continue to view the year-by-year breakdown. The active scenario tab determines which scenario is displayed.
Step 9: Review year-by-year outputs — see Section 3 below for what each column means.
Step 10: Click column headers to update the graph. Taxes Paid and Value to Heirs are the most powerful client presentation visuals.
Step 11: Adjust inputs if needed by clicking Go Back or View Assumptions in the upper right corner.
Step 12: Download the PDF report. Includes a summary page, year-by-year data, and a cross-comparison of all three scenarios on the final page.
Step 13: Model the recommended amount in the Tax Projector to check for phase-out traps, IRMAA spikes, or Social Security taxation triggers.
Step 14: Share recommendations with the client. If proceeding, suggest quarterly estimated tax payments in the conversion year.

Option 2: Optimisation Engine

Use this when you want FP Alpha to calculate the mathematically optimal conversion strategy for a specific goal.

Follow Steps 1–2 from the Manual method, then select one of three optimisation goals from the dropdown and click Optimise Scenario:

Optimisation Goal	What It Maximises / Minimises
Client Max Benefit	Maximises the client’s total after-tax portfolio value at the life expectancy age. This gives a realistic view of how much money the client would actually keep if they needed to liquidate everything — not just face value.
Heirs Max Benefit	Same calculation as Client Max Benefit, but uses the heir’s tax rate instead of the client’s income rate. Maximises the after-tax inheritance amount.
Minimum Taxes	Minimises total tax liability over the client’s entire lifetime, including both conversion taxes and distribution taxes. The client pays the least total tax, though the ending portfolio may not be the largest.

After optimisation, continue with Steps 6–14 from the Manual method. Use each of the three scenario tabs to run a different optimisation goal and compare all three on the final PDF page.

Section 3: Year-by-Year Breakdown Columns

Each column shows two values: the blue number is with the Roth conversion; the orange number is without. Click any column header to update the graph. Taxes Paid and Value to Heirs are the most useful for client presentations.

Column	What It Shows & How It’s Calculated
Net Portfolio Balance	Total after-tax portfolio value (Traditional + Roth + Hypothetical Taxable). Calculated using end-of-year balances with growth less distributions. Reduced by the opportunity cost of conversion taxes if the outside account toggle is ON.
Traditional IRA Balance	Estimated Traditional IRA balance each year. Includes all tax-deferred money. RMDs are calculated automatically by the system and reduce this balance. Conversions also reduce it. This account liquidates second (after the taxable account) if supplemental withdrawals are needed.
Roth IRA Balance	Estimated Roth IRA balance. Increases as conversions are made (net of taxes if outside account toggle is OFF). All distributions from Roth are tax-free. This account liquidates third (after taxable and Traditional) for supplemental withdrawals.
Hypothetical Taxable Account	Starts at $0. Captures all RMD distributions (and their future growth) that exceed the supplemental withdrawal need. This account liquidates first for supplemental withdrawals.
Withdrawals	Total net amount withdrawn each year (after taxes), accumulating and growing by the investment rate of return over time. Informational — not included in the portfolio balance.
Taxes Paid	All taxes paid on conversions, RMDs, and additional IRA distributions for the year. This is the most powerful comparison column for client presentations.
Conversion Amount	The dollar amount converted in each year. Shows the timing and magnitude of conversions across the projection.
Income Amount	Total income received: includes income inputs from Page 1 plus Roth conversions, RMDs, and supplemental withdrawals.
Value to Heirs	Total after-tax inheritance value at the end of the simulation, using the heir’s tax rate from Page 1. Adjust the heir rate via Go Back if needed.
Medicare B & D Premium	Additional Medicare premiums triggered by income thresholds. This is for one client only, even in a joint scenario. Critical to review during conversion years when income spikes.
Marginal Tax Rate	The client’s marginal federal tax bracket based on income, Roth conversions, and supplemental withdrawals for that year.

ACCOUNT LIQUIDATION ORDER FOR SUPPLEMENTAL WITHDRAWALS

When the client needs more than the RMD to cover expenses, the simulator draws from accounts in this order: (1) Hypothetical Taxable Account first, (2) Traditional IRA second, (3) Roth IRA third. This order maximises the tax-free Roth growth for as long as possible.

Tips for Using the Roth Simulator Effectively

Run all three optimisation goals and compare on the final PDF page.

Client Max Benefit, Heirs Max Benefit, and Minimum Taxes often produce very different strategies. Present all three to let the client choose based on their priorities.

Name your scenarios clearly using the pencil icon.

Labels like “Fill 24% Bracket” or “$100K for 5 Years” are much clearer than “Scenario 1” on the PDF report.

Always model the recommended amount in the Tax Projector next.

The Simulator shows the long-term lifetime benefit. The Projector shows the near-term tax consequences, including phase-out traps, IRMAA spikes, and Social Security taxation triggers.

Use the Fill Up Bracket feature for quick, low-risk conversations.

One click calculates the maximum conversion within a given bracket. Ideal for conservative clients who don’t want to cross into a higher bracket.

Don’t include RMDs in Retirement Taxable Income.

The simulator calculates RMDs automatically. If you include them in retirement income, they’ll be double-counted.

For couples with age gaps, run two separate profiles.

The simulator only models one client’s age. The surviving spouse’s trajectory may be very different.

The outside account toggle has the biggest impact on results.

Turn it ON if the client will pay taxes from separate funds (most common). Turn it OFF only if the taxes will come out of the conversion itself.

The PDF’s final page is your meeting closer.

Three scenarios side by side with Client Benefit, Savings to Heirs, and Total Taxes Paid. This single page often drives the final decision.

Ready to run a Roth conversion simulation?

Navigate to Simulators → Roth Conversion Simulator in your FP Alpha account.

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Disclaimer: Information provided is for educational purposes. Your advisor does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.