Roth IRA Conversion Calculator for Investors Highlighted

Paul Dykewicz

Roth IRA conversion calculator for investors is a proprietary creation of retirement expert Bob Carlson, who designed the product to help achieve three key goals.

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Carlson’s Roth IRA (individual retirement account) conversion calculator is intended to lock in today’s income tax rates, to reduce required minimum distributions (RMDs) and to remove assets from traditional IRAs that are taxed at the highest rates as ordinary income. His proprietary Roth IRA conversion calculator aims to accomplish those three goals.

For stock investors, the Roth IRA calculator could be instrumental in addressing those common challenges. Click the following link for details about Carlson’s Roth IRA conversion calculator.

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Bob Carlson, head of Retirement Watch, created a Roth IRA Conversion Calculator.

Carlson’s Roth IRA Conversation Calculator Serves Stock Investors

Stock investors can use Carlson’s Roth IRA conversion calculator to decide whether now is a good time to shift funds out of traditional IRAs and into Roth IRAs. Carlson’s Roth IRA conversion calculator prompts its users with questions that investors should ask to determine their next steps in possibly making that move.

Frankly, the one-size-fits-all approach for certain investment questions is not the best approach with anything as individualized as IRAs. Plus, some online Roth IRA conversion calculators are not accurate, with roughly two out of every three giving the wrong answer, according to the CPA Journal.

Another risk is that certain online Roth IRA conversion calculators require investors to enter their private financial information. Doing so leaves investors vulnerable to potential security breaches.

How to Use Carlson’s Roth IRA Conversion Calculator

With Carlson’s Roth IRA conversion calculator, the assumptions and variables can be adapted for each individual and adjusted as needed when life’s circumstances change. For example, one investment rate of return can be set for pre-retirement and another for post-retirement.

In the event of potential tax rate changes, the spreadsheet can be revised accordingly. Different tax rates also can be applied for taxable investment accounts and for ordinary income, as needed. Carlson designed the spreadsheet to be user-friendly.

It also is possible to view the other worksheets to see the calculations and processes underlying an investor’s past estimates. Seasoned users can delve into the worksheets to check the calculations or modify them. There are no protected cells in the spreadsheet, so users can modify the file as needed.

Of course, exercise caution. Since there are no protected cells, be careful not to change the formulas in any of the cells accidentally.

To avoid that risk, users can stay in the opening worksheet, change assumptions as needed and view the results. Each separate scenario can be preserved one set of calculations at a time by saving the spreadsheet under a different name. That case-by-case process allows comparisons of different scenarios.

Carlson’s Roth IRA Conversation Calculator Caters to Tax-Conscious Income Investors

Current income tax rates may be as low as many investors will see in their lifetimes, with the Tax Cut and Jobs Act expiring after 2025 or simply because the federal budget deficits and debt are so high and climbing.

In traditional IRAs, capital gains and qualified dividends become ordinary income. All distributions of investment income and gains from traditional IRAs thereby are taxed at one’s highest tax rate.

Long-term capital gains and qualified dividends have favorable tax treatment when earned in a taxable account and are tax-free when distributed from a Roth IRA. Earning income in a traditional IRA converts them into the least favorable type of income, warned Carlson, a pension fund chairman who also leads of the Retirement Watch investment newsletter.

“You create tax problems for your beneficiaries by leaving them a traditional IRA to inherit,” Carlson counseled. “They must distribute the entire IRA within 10 years after inheriting it, and they will be taxed on the distributions just as you have. They really only inherit the after-tax value of a traditional IRA, and the inheritance could push them into a higher tax bracket and increase their overall taxes.”

Want to Reduce Required Minimum Distributions? Try Carlson’s Conversion Calculator

One of the big headaches of reaching retirement age is the federal law about taking required minimum distributions (RMDs). Carlson’s Roth IRA conversion calculator can help.

Ideally, a taxpayer can reduce future required minimum distributions, if circumstances allow. The owner of a Roth IRA doesn’t have lifetime RMDs, but owners of traditional IRAs do.

“RMDs create a lot of problems for some IRA owners,” Carlson told me.

Who Wants to Remove Assets from Traditional IRAs that are Taxed at the Highest Rates

To remove assets from traditional IRAs that tax ordinary income at the highest rates, Carlson’s Roth IRA conversion calculator can determine if it is good idea for each individual. Relying on general rules of thumb could get an investor into trouble, because each person’s situation is different.

Important factors to weigh are the difference between one’s current income tax rate and future income tax rate, the level of an individual’s investment return, how long the income and gains compound in a Roth IRA after a conversion, whether the IRA is needed to maintain a standard of living, etc.

“An IRA conversion calculator lets you change each of these variables and see what the long-term results would be under different scenarios,” Carlson said.

Beware of Leaving Assets in an IRA or 401(k) as Long as Allowed

In the March 2023 issue of Retirement Watch, Carlson wrote to his subscribers about the many dangers of leaving assets in an IRA or 401(k) as long as allowed.

“There are several potential dangers to leaving assets in a traditional IRA or 401(k) for as long as allowed,” cautioned Carlson. “Distributions from a traditional retirement account are taxed as ordinary income subject to your top income tax rate. The IRA might be earning long-term capital gains, qualified dividends and other tax-advantaged income. But it’s all taxed as ordinary income when distributed. It might be better to take the money out of the account early, pay the taxes and invest the after-tax amount to earn tax-advantaged gains and income.”

Another danger is that one’s income tax rate might increase. People generally believe their income tax rate declines once they retire, Carlson commented.

“That was the case when we had a lot of tax brackets, Carlson wrote. “But since the Tax Reform Act of 1986, we’ve had relatively few tax brackets. Many people stay in the same bracket after retiring. In addition, tax rates for each of the brackets might increase. The Tax Cut and Jobs Act of 2017 is set to expire after 2025. If Congress doesn’t act, tax rates will jump back to their pre-2018 levels. Or at some point, Congress might raise taxes to close the budget deficits and pay for the outstanding debt. The big risks for retirees are the Stealth Taxes, which either directly target retirees or affect retirees more than other taxpayers.”

The Stealth Taxes include the inclusion of Social Security benefits in gross income, the Medicare premium surtax (also known as IRMAA), the 3.8% surtax on net investment income and others.

The use of Carlson’s Roth IRA conversion calculator as cost-effective tool gained praise from Todd Phillips, president of Estate Planning Specialists in Gilbert, Arizona.

“I have clients who’ve paid north of $1,000 for IRA conversion calculators and found them very confusing and difficult,” Phillips said. “What I’ve found is that Bob Carlson’s IRA conversion calculator is simple to use, and quite powerful.”

Todd Phillips.

Conversation of Traditional IRAs into Roth IRAs Gains Popularity

Conversion of all or part of a traditional IRA to a Roth IRA is gaining popularity. Investors pay a tax to convert the IRA by including the converted amount in gross income. But a conversion eliminates future RMDs for the owner and, after a five-year waiting period, distributions of income and gains are tax free.

“Distributions to beneficiaries also are tax free, but most beneficiaries will have to distribute the entire Roth IRA within 10 years after inheriting it,” Carlson wrote in the April 2023 issue of Retirement Watch. “I’ve discussed the pros and cons of IRA conversions and the best times to do conversions in my books and past issues, most recently in the December 2022 and September 2022 issues. You can convert any amount you want, and there’s no limit on the number of conversions you can do. Some people convert just enough each year to avoid jumping into the next higher tax bracket.”

For investors who like the thought of locking in today’s income tax rates, reducing required minimum distributions (RMDs) and removing assets from traditional IRAs that are taxed as ordinary income at the highest rates, Carlson’s conversion calculator could be well worth using.

Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Follow Paul on Twitter @PaulDykewicz. He is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.

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