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Pralana Gold update

Posted: Mon Jan 30, 2023 12:20 pm
by Tom_T
A new version of Pralana Gold is out. They continue to add some impressive features. If you've been considering it, here are the updates, from the announcement. (P.S. - I don't get a commission!)
The 2023 version of Pralana Gold has been released and contains this new functionality:

- Implemented the Inflation Reduction Act to extend ACA subsidies through 2025 regardless of MAGI
- Implemented SECURE 2.0 to delay RMD’s
- Implemented 2023 tax tables
- Enhanced the Roth conversion algorithm to optionally limit conversions to the top of the 0% or 15% capital gains brackets
- Expanded withdrawal priority options to include proportional withdrawals across all accounts
- Added the capability to vary the general inflation rate over two different time periods
- Added the ability to vary the rates of return for each asset class over multiple time periods
- Added the capability to model future children
- Added the capability to delay RMD’s from inherited traditional and Roth IRAs
- Implemented a new summary report that presents a detailed listing of income and expense components and identifies all the puts and takes relative to regular, tax-deferred and Roth accounts for the first five years of the modeling period
- Implemented the concept of essential and non-essential expenses (replacing the prior definition of discretionary and non-discretionary expenses) and enhanced the Monte Carlo and historical analyses to compute the essential spending success rate in addition to overall success rate
- Implemented a new page that shows side-by-side comparison of analysis results from all three scenarios (my note: the tool allows you to set up three different, complete scenarios in your planning)

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 12:15 pm
by Luckywon
Have been unable to access the Pralana website. Anyone else having trouble?

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 12:27 pm
by LadyGeek
I removed an off-topic post and reply. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 5:49 pm
by Tom_T
Luckywon wrote: Wed Jun 21, 2023 12:15 pm Have been unable to access the Pralana website. Anyone else having trouble?
No issues here.

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 5:54 pm
by mouth
same here. in fact i just downloaded Bronze to play around

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 6:41 pm
by Luckywon
Tom_T wrote: Wed Jun 21, 2023 5:49 pm No issues here.
mouth wrote: Wed Jun 21, 2023 5:54 pm same here. in fact i just downloaded Bronze to play around
Thanks, it was a temporary problem with the website.

So far I'm impressed with what it seems to be capable of, though still working through the nuts and bolts, which I expect to be a bit time consuming. I'm hoping it will be able to model impacts of Roth conversions for me.

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 6:58 pm
by Exchme
Luckywon wrote: Wed Jun 21, 2023 6:41 pm
Tom_T wrote: Wed Jun 21, 2023 5:49 pm No issues here.
mouth wrote: Wed Jun 21, 2023 5:54 pm same here. in fact i just downloaded Bronze to play around
Thanks, it was a temporary problem with the website.

So far I'm impressed with what it seems to be capable of, though still working through the nuts and bolts, which I expect to be a bit time consuming. I'm hoping it will be able to model impacts of Roth conversions for me.
I found that it does an excellent job modeling Roth Conversions. I think the manual is good so hopefully you can get all the inputs set up, if not there is a user forum at the website.

Tip: one of the key inputs that may not be so obvious is on the Financial Assets-Management tab, look for the "Tax Rate for Converting Absolute Dollars to Effective Dollars". Absolute $ refers to the apparent value of the IRA, Effective $ are what you would net after taxes. You want to put in a tax rate that would be what you (or your heirs) would have to pay to withdraw money from the IRA. If you don't enter anything there, you are telling the program you could get the money out of your IRA tax-free, so it will tell you there is little reason to bother doing Roth Conversions. When setting that rate, don't forget about IRMAA, it's about another 5% and don't forget that if you are married, one of you may pass early, leaving the other paying taxes as single.

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 7:39 pm
by Luckywon
Exchme wrote: Wed Jun 21, 2023 6:58 pm Tip: one of the key inputs that may not be so obvious is on the Financial Assets-Management tab, look for the "Tax Rate for Converting Absolute Dollars to Effective Dollars". Absolute $ refers to the apparent value of the IRA, Effective $ are what you would net after taxes. You want to put in a tax rate that would be what you (or your heirs) would have to pay to withdraw money from the IRA. If you don't enter anything there, you are telling the program you could get the money out of your IRA tax-free, so it will tell you there is little reason to bother doing Roth Conversions. When setting that rate, don't forget about IRMAA, it's about another 5% and don't forget that if you are married, one of you may pass early, leaving the other paying taxes as single.
That's a great tip, I doubt I would have caught on to that. Many thanks! :sharebeer

Re: Pralana Gold update

Posted: Wed Jun 21, 2023 11:42 pm
by neurosphere
Exchme wrote: Wed Jun 21, 2023 6:58 pm you don't enter anything there, you are telling the program you could get the money out of your IRA tax-free, so it will tell you there is little reason to bother doing Roth Conversions. When setting that rate, don't forget about IRMAA, it's about another 5% and don't forget that if you are married, one of you may pass early, leaving the other paying taxes as single.
Are you sure that's true? A complicated software package like this forces you to predict your future tax rate over a multi-year before it can then calculate Roth conversions?

I use the tool to tell me what my rates are, what IRMAA I might pay, etc. They've already knows that information, so I'm not sure why I would have to estimate it for the software in order for it to tell me whether I would benefit from Roth conversions.

But, I concede that I'm missing something or misunderstanding you.

Re: Pralana Gold update

Posted: Thu Jun 22, 2023 3:45 am
by Tdubs
neurosphere wrote: Wed Jun 21, 2023 11:42 pm
Exchme wrote: Wed Jun 21, 2023 6:58 pm you don't enter anything there, you are telling the program you could get the money out of your IRA tax-free, so it will tell you there is little reason to bother doing Roth Conversions. When setting that rate, don't forget about IRMAA, it's about another 5% and don't forget that if you are married, one of you may pass early, leaving the other paying taxes as single.
Are you sure that's true? A complicated software package like this forces you to predict your future tax rate over a multi-year before it can then calculate Roth conversions?

I use the tool to tell me what my rates are, what IRMAA I might pay, etc. They've already knows that information, so I'm not sure why I would have to estimate it for the software in order for it to tell me whether I would benefit from Roth conversions.

But, I concede that I'm missing something or misunderstanding you.
That sounds like a pretty important failing. Why wouldn't tax rates be preloaded into it?

Re: Pralana Gold update

Posted: Thu Jun 22, 2023 5:51 am
by Tom_T
Tdubs wrote: Thu Jun 22, 2023 3:45 am
neurosphere wrote: Wed Jun 21, 2023 11:42 pm
Exchme wrote: Wed Jun 21, 2023 6:58 pm you don't enter anything there, you are telling the program you could get the money out of your IRA tax-free, so it will tell you there is little reason to bother doing Roth Conversions. When setting that rate, don't forget about IRMAA, it's about another 5% and don't forget that if you are married, one of you may pass early, leaving the other paying taxes as single.
Are you sure that's true? A complicated software package like this forces you to predict your future tax rate over a multi-year before it can then calculate Roth conversions?

I use the tool to tell me what my rates are, what IRMAA I might pay, etc. They've already knows that information, so I'm not sure why I would have to estimate it for the software in order for it to tell me whether I would benefit from Roth conversions.

But, I concede that I'm missing something or misunderstanding you.
That sounds like a pretty important failing. Why wouldn't tax rates be preloaded into it?
This seems questionable; I'll have to check it later. I've never put anything in that field, and Pralana always recommends plenty of Roth conversions for me.

Re: Pralana Gold update

Posted: Thu Jun 22, 2023 7:19 am
by Exchme
Tdubs wrote: Thu Jun 22, 2023 3:45 am
neurosphere wrote: Wed Jun 21, 2023 11:42 pm
Exchme wrote: Wed Jun 21, 2023 6:58 pm you don't enter anything there, you are telling the program you could get the money out of your IRA tax-free, so it will tell you there is little reason to bother doing Roth Conversions. When setting that rate, don't forget about IRMAA, it's about another 5% and don't forget that if you are married, one of you may pass early, leaving the other paying taxes as single.
Are you sure that's true? A complicated software package like this forces you to predict your future tax rate over a multi-year before it can then calculate Roth conversions?

I use the tool to tell me what my rates are, what IRMAA I might pay, etc. They've already knows that information, so I'm not sure why I would have to estimate it for the software in order for it to tell me whether I would benefit from Roth conversions.

But, I concede that I'm missing something or misunderstanding you.
That sounds like a pretty important failing. Why wouldn't tax rates be preloaded into it?
If you look at some threads about Roth Conversions, one of the issues is folks have different circumstances, goals and fears. This input allows the user to have a way to compare the purchasing power of remaining IRA balances to other funds for their particular circumstances. The program uses this entry to cover lots of possible future scenarios, for instance:
-There might be an alternate future where you decide to make a big purchase and withdraw the money, you could make a guess on the tax rate.
-For money leftover in your estate, your best guess of your heirs' tax rate would be the best answer.
-You might be intending to give away your estate to charity, so zero would be the best answer. Unless you live a long time, Roth Conversions might not make sense for you.

Re: Pralana Gold update

Posted: Thu Jun 22, 2023 7:30 am
by Exchme
Tom_T wrote: Thu Jun 22, 2023 5:51 am
Tdubs wrote: Thu Jun 22, 2023 3:45 am
neurosphere wrote: Wed Jun 21, 2023 11:42 pm
Exchme wrote: Wed Jun 21, 2023 6:58 pm you don't enter anything there, you are telling the program you could get the money out of your IRA tax-free, so it will tell you there is little reason to bother doing Roth Conversions. When setting that rate, don't forget about IRMAA, it's about another 5% and don't forget that if you are married, one of you may pass early, leaving the other paying taxes as single.
Are you sure that's true? A complicated software package like this forces you to predict your future tax rate over a multi-year before it can then calculate Roth conversions?

I use the tool to tell me what my rates are, what IRMAA I might pay, etc. They've already knows that information, so I'm not sure why I would have to estimate it for the software in order for it to tell me whether I would benefit from Roth conversions.

But, I concede that I'm missing something or misunderstanding you.
That sounds like a pretty important failing. Why wouldn't tax rates be preloaded into it?
This seems questionable; I'll have to check it later. I've never put anything in that field, and Pralana always recommends plenty of Roth conversions for me.
It's mentioned on page 33 of the manual. See my post above about how it is important to tell the program about the purchasing power equivalence between IRA money and other funds.

Re: Pralana Gold update

Posted: Thu Jun 22, 2023 8:28 am
by Tom_T
Exchme wrote: Thu Jun 22, 2023 7:30 am
Tom_T wrote: Thu Jun 22, 2023 5:51 am This seems questionable; I'll have to check it later. I've never put anything in that field, and Pralana always recommends plenty of Roth conversions for me.
It's mentioned on page 33 of the manual. See my post above about how it is important to tell the program about the purchasing power equivalence between IRA money and other funds.
I'm not questioning the use; I agree, it's important. I'm confirming that Pralana populated that tax rate for me. It was not zero by default, and I've never entered it because I didn't even know it existed. :)

Re: Pralana Gold update

Posted: Thu Jun 22, 2023 10:35 am
by neurosphere
Exchme wrote: Thu Jun 22, 2023 7:30 am It's mentioned on page 33 of the manual. See my post above about how it is important to tell the program about the purchasing power equivalence between IRA money and other funds.
The manual writes
This is a toggle switch to alternately calibrate the graph in terms of absolute or effective dollars, where absolute dollars reflect actual account balances and effective dollars reflects account balances with all money in tax-deferred accounts being reduced to estimate its after-tax value (the effective buying power of this money)
My understanding is that this feature only affects the display/output after a Roth conversion optimization is completed (and which is of coursed based on the users actual inputs and resultant tax calculations include state and federal taxes, IRMAA, etc).

For the user, the absolute dollars is what determines the benefits of the Roth conversions. Because the program is already modeling spending ability and it takes into account distributions from all account types according to a certain user-specified order.

Effective dollars essentially represents a "liquidation" situation. By specifying a tax rate that is not necessarily your own to calculate an "effective" portfolio value, one can indeed model a situation such as whether an heir might inherit all assets at a given point in time. Of course, most pre-tax accounts for most heirs have a 10-year distribution period where tax rates for the heir can certainly vary whether they pay taxes all at once (e.g. empty all inherited accounts immediately) or something different.

So I would say the summary as I understand it is that Pralana handles Roth conversions just fine without needing the user to enter anything in terms of guesses for a marginal tax rate. But if they choose to do so, a user can see another "what if" type scenario (i.e. death, unplanned spending/purchases perhaps) by looking at the effective value of a portfolio.

Does it seem that I have that correct?

Re: Pralana Gold update

Posted: Thu Jun 22, 2023 1:57 pm
by Exchme
neurosphere wrote: Thu Jun 22, 2023 10:35 am
Exchme wrote: Thu Jun 22, 2023 7:30 am It's mentioned on page 33 of the manual. See my post above about how it is important to tell the program about the purchasing power equivalence between IRA money and other funds.
The manual writes
This is a toggle switch to alternately calibrate the graph in terms of absolute or effective dollars, where absolute dollars reflect actual account balances and effective dollars reflects account balances with all money in tax-deferred accounts being reduced to estimate its after-tax value (the effective buying power of this money)
My understanding is that this feature only affects the display/output after a Roth conversion optimization is completed (and which is of coursed based on the users actual inputs and resultant tax calculations include state and federal taxes, IRMAA, etc).

For the user, the absolute dollars is what determines the benefits of the Roth conversions. Because the program is already modeling spending ability and it takes into account distributions from all account types according to a certain user-specified order.

Effective dollars essentially represents a "liquidation" situation. By specifying a tax rate that is not necessarily your own to calculate an "effective" portfolio value, one can indeed model a situation such as whether an heir might inherit all assets at a given point in time. Of course, most pre-tax accounts for most heirs have a 10-year distribution period where tax rates for the heir can certainly vary whether they pay taxes all at once (e.g. empty all inherited accounts immediately) or something different.

So I would say the summary as I understand it is that Pralana handles Roth conversions just fine without needing the user to enter anything in terms of guesses for a marginal tax rate. But if they choose to do so, a user can see another "what if" type scenario (i.e. death, unplanned spending/purchases perhaps) by looking at the effective value of a portfolio.

Does it seem that I have that correct?

The program calculates both Effective and Absolute $, you choose which you would like to see on the Analysis-Roth Conversion tab, under the graph is a button where you can select whether to see Absolute or Effective $. When you switch back to other views, you will notice that selection remains with you.

Entering zero in the Tax Rate for Converting Absolute Dollars to Effective Dollars means what it says - if you enter zero, you are telling the program you have a tax free way to get the residual balance out of the IRA. Unless you are bequeathing the IRA to a charity or are only planning on leaving enough in the IRA for long term care, zero is not a good entry.

Roth Conversions have four key benefits for this discussion (they also can be a source of cash if you need to avoid something like an IRMAA tier, but that's a year by year tactical decision, not so important for long term planning)
-Starting with the obvious, as you take RMDs, Roth Conversions lower the tax bracket in the withdrawal year. This doesn't start until RMDs or regular IRA withdrawals start.
-Having reduced the RMD size, Roth conversions slightly decrease tax drag in taxable - since the prior years' RMDs are smaller, you either are spending down taxable to live or at least accumulating less in taxable. This doesn't start until RMDs start and in the first year, the saving may be just a few $, but it does grow more quickly than exponentially and eventually becomes important.
-If you pay taxes on the conversions from taxable, that lowers your tax drag in taxable.
-Residual money that you or your heirs withdraw will already have taxes paid so the withdrawal will not be stacked on top of other income. Given that the other benefits take a long time to grow to appreciable size, if you enter zero for the Tax Rate for Converting...,the program will tell you that Roth Conversions are generally a terrible idea. You will see things like being worse off doing conversions until you are very elderly (say 90ish).

Re: Pralana Gold update

Posted: Fri Jun 23, 2023 1:17 am
by Luckywon
Exchme wrote: Thu Jun 22, 2023 1:57 pm
Roth Conversions have four key benefits for this discussion (they also can be a source of cash if you need to avoid something like an IRMAA tier, but that's a year by year tactical decision, not so important for long term planning)
-Starting with the obvious, as you take RMDs, Roth Conversions lower the tax bracket in the withdrawal year. This doesn't start until RMDs or regular IRA withdrawals start.
-Having reduced the RMD size, Roth conversions slightly decrease tax drag in taxable - since the prior years' RMDs are smaller, you either are spending down taxable to live or at least accumulating less in taxable. This doesn't start until RMDs start and in the first year, the saving may be just a few $, but it does grow more quickly than exponentially and eventually becomes important.
-If you pay taxes on the conversions from taxable, that lowers your tax drag in taxable.
-Residual money that you or your heirs withdraw will already have taxes paid so the withdrawal will not be stacked on top of other income. Given that the other benefits take a long time to grow to appreciable size, if you enter zero for the Tax Rate for Converting...,the program will tell you that Roth Conversions are generally a terrible idea. You will see things like being worse off doing conversions until you are very elderly (say 90ish).
Perhaps less directly related to this discussion but might also bear in mind they may reduce the size of your estate which for some may reduce estate tax and therefore benefit your heirs.

Re: Pralana Gold update

Posted: Fri Jun 23, 2023 9:14 am
by Exchme
Luckywon wrote: Fri Jun 23, 2023 1:17 am
Exchme wrote: Thu Jun 22, 2023 1:57 pm
Roth Conversions have four key benefits for this discussion (they also can be a source of cash if you need to avoid something like an IRMAA tier, but that's a year by year tactical decision, not so important for long term planning)
-Starting with the obvious, as you take RMDs, Roth Conversions lower the tax bracket in the withdrawal year. This doesn't start until RMDs or regular IRA withdrawals start.
-Having reduced the RMD size, Roth conversions slightly decrease tax drag in taxable - since the prior years' RMDs are smaller, you either are spending down taxable to live or at least accumulating less in taxable. This doesn't start until RMDs start and in the first year, the saving may be just a few $, but it does grow more quickly than exponentially and eventually becomes important.
-If you pay taxes on the conversions from taxable, that lowers your tax drag in taxable.
-Residual money that you or your heirs withdraw will already have taxes paid so the withdrawal will not be stacked on top of other income. Given that the other benefits take a long time to grow to appreciable size, if you enter zero for the Tax Rate for Converting...,the program will tell you that Roth Conversions are generally a terrible idea. You will see things like being worse off doing conversions until you are very elderly (say 90ish).
Perhaps less directly related to this discussion but might also bear in mind they may reduce the size of your estate which for some may reduce estate tax and therefore benefit your heirs.
Good point, if you die with a ton of money, your heirs will lose big if you haven't done conversions. When TCJA expires after 2025, the estate exemption gets cut in half though it still won't affect a lot of people. One annoyance in Pralana is the tax rate for converting absolute to effective dollars is capped at 60% to make sure users don't get decimals and percents mixed up, but if estate taxes were included, the effective rate could be higher for high NW folks. Pralana's owner is very responsive, so I'm sure he would raise that max rate if asked, but apparently no one has asked.