AMA | Roth Conversions

Okay. Yeah. Well, this is the first time we're doing a webinar in a while, so bear with us during some of our initial technical difficulties. But it's five o', clock, so we can get started. We have a really big agenda for today. We're going to go through some stuff that's new at New Retirement. We're going to talk about Roth conversions and then do a demo of how you do them in the tool and then kind of open it up to questions. Some people provided some stuff in advance. Also open to live questions as we do the demo and as you think of them, I'm Michelle. I'm in charge of customer experience. So if you've used the chatbot lately, it's usually me replying to you to help you figure out your question or help you model your plan. And then we also have here Steve, you can introduce yourself.

Yeah, sure. So, Steve, Chad, I'm the founder and I used to do all the customer support until Michelle joined. So super happy that she took over. And yeah, I'll give you guys, once we get into this, we'll give a quick background and update on some of the things that are happening in the company and then we'll be diving into the product and into the Roth stuff.

And Bill.

Yeah. So I'm Bill Smith and I am a certified financial planner. And I work for New Retirement Advisors, which is a subsidiary of New Retirement. And I work with users when they get to the point, if and when they get to the point that they'd like to work with an advisor to help them hone their plan, look at the assumptions. So we typically do plan reviews with clients. So it's just an opportunity to review your plan and to again to hone that plan with a certified financial planner.

I'm Andy, Andy Beck. Yeah, I lead the build out of our software product and certainly interested and involved in the services side, but mostly focused on what software we're building, features, products, that sort of thing.

Yeah. Cool. So we're super excited that everybody has joined us and we're going to try to do these more often. But we'll have Steven, Steve, kind of give a little background of the company and a brief overview to get us started.

Yeah, look, so we started this company because we think that there's an opportunity to bring technology and deliver kind of a DIY solution for retirement planning that is kind of a big urgent should for many people. And we think we can, you know, make it easier and simpler, let people get started and do this at a super low cost. You know, on their own time and in a completely unbiased way. So, you know what our vision is essentially deliver. I mean, today I would characterize what we've done is like the TurboTax for retirement planning. And we're making it better and better and I think you'll see it evolve pretty quickly. One thing that's happened since the last one of these is we did get our first institutional funding, so we raised a few million bucks, so we have more capacity. We actually got this right at the end of March, which is good. And so, you know, you're seeing some of the results of it. Michelle, who was kind of volunteering her time as a, you know, enthusiast, has now joined us and is charge of customer experience. Andy joined us as the head of product and is really making, you know, you're going to see some pretty material improvements to the product and he'll be talking about some of the stuff that started to happen, but it's going to get a lot better over the next couple months. The UX will get a lot simpler to use and then Bill is more fully integrated. With our team around delivering advice for our users, we're scaling that this slide gives a little bit of a picture of some of the problems that we see out in the market that we're trying to address, which is really, you know, make it a lot cheaper, you know, and give people a different look at their plan. You know, in terms of what we're doing, you know, it's really focused around, at least initially, around decumulation. So most financial planning tools are around accumulating your assets. So kind of saving and investing. And that has been largely commoditized. Most of our users are pretty sophisticated, so they kind of understand, hey, let's keep fees low, let's do good portfolio allocation, you know, let's save regularly, let's try to rebalance or have that automated. We're trying to tackle that transition into retirement and decumulation, which starts getting complicated because you have to start thinking about how you draw your assets down, how do you stay tax efficient when you claim Social Security? How's health care going to work? Should I use home equity? Should I annuitize problems like that? Should I do a Roth conversion, which is what we're going to dive into today. And where we're going is we want to take everything we're learning with our users and deliver a virtual financial advisor. So we are going to really try to automate a lot of this later this year, where today it's like a tool that people use. But in the future, we are going to be running thousands of simulations all the time for all of our users, looking around and saying, hey, so if something happens, you know, interest rates are going down, markets getting more volatile, you know, whatever's going on, you know, tax rates are changing, we will be running simulations and saying, hey, Andy, it looks like, you know, because such and such has happened, there might be an opportunity for you to do something else with your plan, and it'll be based on math. So we're rolling out Monte Carlo in a much bigger way, and we'll be talking about that a little bit, but we'll essentially be looking for opportunities and, and trying to explain to folks why we're making certain recommendations based on the analysis that we're running behind the scenes. This will make more sense as we get closer to delivery later this year. But I mean, I guess one quick thought. I mean, one way we think about ourselves is like the Tesla of planning. We are learning with our users as they go through and do their own planning. We're learning with them and trying to build that intelligence, you know, and make it available for everybody.

So then. Does that make you Elon Musk?

No, Nowhere close. I wish so, you know, and just final thing here, and I'll be quiet. You know, I think what's different about us is we are, until recently, we're completely bootstrapped. So we're independent. You know, we're not beholden to some large financial institution. We are consumer focused. We're going direct to consumer first. A lot of investors are like, that's crazy. But we think that's the better way to do it. We are really trying to deliver a platform. So we want this to be something that users use. And in the future, if you do decide, hey, I want to be able to get better healthcare, we want to make it easy for you to see options for how to get health care but shop the market. So we won't be biased one way or another about what you choose, but want to make it easy for you to find different ways to get solutions, but that's farther downstream. And then the last thing is we're totally technology focused. We're trying to do this with technology.

No, that sounds good. That was great Overview. Before we continue with kind of highlighting some of the stuff that we've been rolling out in the last couple weeks. I just want to remind everyone we want this to be interactive. Some people have already started to use the chat feature. If you have a question, you can certainly write it. There we'll try to monitor that and answer them as they come up. Or I think there's a feature towards the bottom in your control panel where you can raise your hand so you can do that too. And then I can kind of give you permission to speak or unmute you. So feel free to kind of ask questions throughout this if they come up, so that, you know, it's more of a conversation.

Okay, cool.

So, Andy, you want to share some product lead some product info?

Sure.

So we're going to talk about a few features that have rolled out recently, some of which maybe you are aware of some not. First one, Social Security. We've had Social Security modules a long time. We changed the mechanics of how they work a little bit, as well as giving users a bit more control over the ability to change their, like, the cost of living assumptions that project over time. The big, like, mechanics change is we used to let you say, how much are you going to claim and at what starting age? And now what we do is we say, go ahead and put in your benefit at full retirement age. This is how the Social Security Administration calculates your Social Security benefit. It says if you claim at 67, that's full retirement age, it's going to be some amount. And they have a formula whether you claim it's 62 to 70. I think this audience is probably pretty familiar with the mechanics, but if not, that's how it works. And what we'll do is we'll just go ahead and like, match that arithmetic. So we'll say go ahead and put in your benefit at four time and age, then choose your start age when you want to claim, and you can see how that number will change. And then of course, like with everything else, you can see how it updates the rest of the plan.

I think one other thing, one last comment was we. We broke out Social Security inflation rates from general inflation. Yeah. Yeah.

Another new feature which is actually still in beta is Monte Carlo analysis. Pretty exciting one. A lot of people been asking for this a long time. Everybody does this a little bit differently. First, we'll just quickly talk about what is Monte Carlo analysis. It's, you know, kind of reflecting what Steve was just saying. It's the idea that. There you go, James. Yeah, I'm looking at the chat. Monte Carlo analysis means you run a bunch of simulations and you change up different variables in your model and try and do a whole bunch of different scenarios. So we're currently running 200 scenarios. We're going to bump that up to 1,000 soon. We want to make sure we get the right performance, it needs to run quickly in order to be still useful. And who knows, maybe we'll go to more scenarios over time, but that's the current plans. And then we're going to run all the scenarios and what we do is we take the average of them and we're going to plot it on that chart below. So that's the blue line. The red and green lines are your pessimistic and optimistic growth and inflation values. And then we have a light blue area which is going to show you between the 25th and 75th percentiles. Like this is very likely, or between 25th, 75th probability. This is where your projected savings will end up. Then we give you a few parameters that you can play around with there on the right side, varied investment returns, general inflation, and you can go ahead and click that run again button and it will rescore everything and pop out a result. So we think Monte Carlo analysis is not just powerful, but extremely important to how users or how people in general get confidence around where they're going to end up over time. So we're really invested on getting this right. We're also going to be weaving it into different parts of the tool because we think it is absolutely not the only way to look at retirement savings and retirement planning, but one very important way to do so. It'd be great to hear if any of you have used it, and if not, you can go into that little person icon. I don't know which way I'm pointing, but in the top right of the page there's a little person icon which is your profile. In your account settings, you can log. You can enter into our beta program towards the bottom if you're a planner plus user. And then you'll be able to use Money Card analysis also. All right, not last thing. Third thing is Linked Accounts account linking. So Linked Accounts, many of you will have used this feature before. If not with new retirement, then maybe with other digital financial services tools. It's the idea that rather than manually entering in your account name, balance and the account type, you can automatically link it to your financial institution. We partner with a company called Plaid to do this. Over time, we'll probably partner with more companies anyway. Plaid is like the industry leader in account coverage, ease of use, security and privacy. And so we're very happy to be working with them. That being said, it doesn't always work. We can totally. I got a question on security. I'll get to that in just a second. Bottom line is if you could show it. We now allow you to link existing accounts to your financial institution. We also allow you, as you add another account that, add another account that has a little bit different UX to it and you can create from linked accounts to begin with. There will be another variation on this. I don't know exactly when it'll roll out, so I don't want to say too much, but we will keep evolving this. We think it's a big win. Not everyone is into account linking. I get it, you people have security concerns, privacy concerns. Some people like to do it manually. It forces them to think through where their assets are. Great, go ahead and do that. But a lot of people love the ease of use. And then the big, big benefit, besides easier onboarding is we can monitor, we can, we can update these values over time automatically. And so we don't do too much yet showing your ongoing net worth over time. But we're going to be adding in better and better visuals. We're going to show charts, we're going to, we're gonna give you more tools and hopefully alerting and messaging around what's going on with your accounts, which should not only make your plan stronger, show you how you're sticking to your plan, but also power a lot of that stuff that Steve was talking about, which is how can we be really effective financial advisor to you, be a partner with you over the long run.

Cool.

There's a question on security. Yeah, so the question on security. So Plaid is industry leader. They say they got bank level security and privacy end to end encryption. So number one thing on security is you're gonna, you go into an experience that's run by pled and so you enter your credentials like your username and password. You're not actually sharing those with us. We don't store them, we don't know what those are. We can't go and log into your account after this.

It's.

It's handled by somebody else. End encryption is like leading the top of the line security. I know Plaid cares a ton about security because their whole business, if it's not secure, their business goes away. And they just got bought by Visa for more institutional backing and reputational stuff. They're just a really rock solid company. I see a question on personal capital. Personal capital, I believe works with Yodlee, which is the other large company in the space, but they might work with both. I'm just not sure. We will probably work with both Yodlee and Plaid, but not for the time being. For now, it's Just Plaid. Plaid bought a. Well without getting into many details, Plaid has good investments coverage in addition to the ability to link bank accounts and credit cards and that sort of thing. So we're very happy to be working with them. So Plaid will use your credentials to access and I believe they will have to store them. But it's like so there is a third party there somewhere. But just know that it's like their top job to be safe and secure and responsible with this. They've never been hacked to my knowledge. I trust them fully and completely. I use a bunch of products with Plaid but certainly if you're not 100% comfortable with it, totally understand we could follow up with some. Plaid has some information for consumers around exactly what they do. I might be able to drop a couple links for everyone to take a look after this. And then there's a question on does it account link to personal capital? I haven't checked personal capital specifically. There is pretty widespread coverage of financial institutions. It's not 100% perfect, but very good when you run into issues is typically around two factor multifactor authentication or other security like controls. That's where we generally see users have a little bit trouble. But we've seen really good account linking with Vanguard, with Schwab, with TD Ameritrade, with Chase, Wells Fargo and those, those, you know, like kind of like the banks and the investment houses. We, we think it's gonna be really good in the long run. We do, you know, you have issues linking. Absolutely. Bring them up to Michelle, Michelle via intercom and she'll probably just say hey Andy, go figure this out. And we'll do so, you know, we'll go work together on and get your accounts linked and, and operating smoothly as easily as possible.

Yeah, I mean just one quick comment on that. I think, you know, hopefully everyone does enable two factor authentication on any of your financial accounts regardless. And so you should get. So when you log in it'll send you like a text message to your mobile phone that you, that's a one time code. You use it for that. And you can by the way further lock this down by locking out your mobile account access. I did that for my phone so that because there, you know, there are some ways people can try to intercept it. But yeah, just to be clear, Plaid.

Handles that very well. We handle that very well in a lot of cases. But for some institutions it sort of breaks the link that keeps you secure and safe. It just makes you know, you can't, you can't use this feature with New retirement as easily as you'd like. And then one more feature, RSA keys. I will have to follow up on RSA keys. I'm not totally sure. I'll take a note. Last thing I want to call out is new retirement services. So you know one thing we offer that we want to make sure you're all aware of is you can work with an expert to create your plan and ensure your goals are on track. As much as we want to be a virtual financial advisor and empower power planners DIYers people who are just want to get in and check their plan on their own, we absolutely that's our focus. Sometimes it's good to work with a human either to help build the plan or then to ask more questions. We offer a couple different options. Work with a coach or a CFP through a couple different programs that we have. We're really excited about new retirement services and the growth of our services function over the next couple years here. And I just wanted to bring it up and if you have any questions on that ask Michelle and Bill because they're actually doing it, not me.

Yeah. And actually so a couple quick comments. I'm actually reading the comments here. I agree with what Tommy is saying that they're you know plaid is keeping a token with limited access they're not getting so but we'll, we can follow up with an email about exactly what's happening. And then on the services side, you know we are pretty, we're committed to the idea of hourly services through coaching or CFP versus assets under management and we are testing different versions of this. So we just changed live to be essentially it's the plus software plus a 45 minute plan review for one price per year and you can also upgrade and downgrade. So if you're using plus and you want to get do live you can do that. And if you do live and you're like okay, I've got enough and I don't want anymore, you can go back to plus. But if you have feedback and ideas about how you I'd like to see services packaged up, let us know as well. We're, we're definitely, you know, testing different ideas here.

Now we'll talk a little bit about Roth conversions and just maybe establish a baseline of what they are.

Okay. Hi, this is Bill Smith. I'm going to talk a little bit about Roth conversions and then Michelle's going to go through show you how to execute Roth conversions in the capital. So I'm going to talk about Roth basics. So first of All a Roth is an IRA in which we're used to tax deferred accounts in which you make a contribution to a 401k or an IRA and you get a tax benefit, as in a tax deduction. And then when the money is pulled out, you're going to pay taxes on that money. Okay. So you're basically, you're shifting the tax burden down the road and then, and I don't remember the year, but then the Roth account conversely is different. And what it allows you to do is you are going to make a contribution to an account, you're going to pay the taxes now, it's then going to grow tax deferred forever, and then you get to pull the money out without paying taxes as well. So it's really a function of do I want to pay taxes now and then be taxed less later in the future or do I want to be taxed less now and then be taxed later in the future? Right. So it's really shifting the tax burden. Okay, so, so what is a Roth conversion? So Roth conversion is the process of shifting money from the pre tax tax deferred account.

Okay.

So that would be your IRA or your 401k to a post tax deferred account and that's going to be your Roth. Okay. So again it's just deciding when you're going to take that tax hit. Both accounts get to enjoy tax deferred growth. It's just depending, it just depends again, and when you're going to pay those taxes. So when might you want to apply a Roth conversion strategy? So in general you're going to want to try to capture a lower marginal tax rate earlier if you think your tax break it, your bracket will be higher in the future. So some examples would be, you know, RMDs will increase your income, right? So it might be that you, I don't know, you were in a 12%, 15% tax bracket, excuse me, when you were making your 401k contributions, but you've done such a good job of saving and then you've got this tax efficient growth that your RMDs, your required minimum distributions when you turn 72 from your tax deferred accounts, IRS and 401ks could well push you up into a much higher tax bracket. You might have done such a good job that you were accumulating money in a 12%, 15% bracket, whatever that might be. And then now all of a sudden you're going to be forced to be taking money in a 22% bracket or a 24% bracket, right?

So.

Again, so if you think that your taxes are going to be higher later, you might want to take them now. And when might that happen? If you foresee that your, again, RMDs will increase your income, your career growth, right, Maybe you're going to, and Michelle can actually speak to this, but in a case that you're going to be making more money later in your career and you're going to be taxed at a higher tax bracket, well, maybe it makes sense to take some Roth conversions now. Your income is currently low, so these are kind of the classics, right? So somebody takes the sabbatical they have, they're taking a year or two off from not working, they're gonna do a little traveling. So you've got some low income years, so why not take some Roth conversions now where your taxes are, they might be zero to, I don't know, 12% in the 12% bracket, whatever that might be. Early retirees, this is a classic. Okay, so this is the people, I know a lot of people on this call, I work with some of you, I speak with you. You know, you might be, you might be fortunate enough to be retiring at age 55, somewhere between age 55 to 65, sometime before you start taking Social Security, before RMD start happening. You know, those are gonna be relatively low tax years. So you're gonna want to take advantage of those by converting tax deferred accounts now, paying the taxes, and then you get to enjoy that tax deferred growth. And then when you pull the money out of the Roth, you, if you choose to, you won't be paying taxes on it. So. And then lastly, this is, you know, currently we're in a tax environment and I don't want to get political here, but I think we can probably all agree that we're probably enjoying the lowest tax rates for income, for personal income taxes that we may see during our lifetimes. I can't predict what's going to happen with taxes. Nobody can do that. But I think we can all agree that tax rates are extremely favorable right now. So this might be a good time to think about doing some Roth conversions. And again, this is just, you want to pull income forward for tax free growth is what you're trying to do here. Okay, so next slide. So what are some of the benefits again, you're going to be generating? You're going to be creating more tax efficient withdrawals, right? So it might be more, more tax efficient to be paying those taxes now rather than paying them Later. Okay. And again, I think that some of these concepts that I'm throwing out here, this will be when Michelle goes through and does the demonstration, you'll see what we're talking about. When we're talking about tax efficient withdrawals, possibly you might be able to possibly avoid tax torpedoes, right? So if you are making too much money in retirement, you can you face what is called an irmaa, which is an income related monthly adjustment amount which applies to modified gross income above certain thresholds. And what that does is that's going to increase your Medicare Part B and or part D premiums. Okay? So if you are making too much money, you know, when you're 72 and a half and you're taking those RMDs, if your income is too high, it's actually going to increase the cost for your Medicare. So again, it might make sense to take some of the tax hit now rather than having too much income later in life and then finally to create a legacy. So one of the benefits of a Roth is that you pay the taxes now. The, the account grows tax free. You never have to take RMDs. All right, so with RMDs, requirement distributions, there's, you know, there's a very standard schedule, right? So you have to, you have to take out a certain percentage of your account every year during your lifetime. And that actually increases over time. So it's like it's 4% one year and then it's, you know, 4.2%, 4.5%. And then the idea is that the IRS wants their money, so they're going to make you take money out. They're called requirement distributions. You don't have that with a Roth. So the Roth continues to grow because you've already paid your taxes. The IRS is satisfied. So you've got an account that is grown tax free. Now you can leave that to your heirs and then they get to inherit that Roth. They do have to pull that money out over the course of 10 years after having inherited it. But again, they're not going to have to pay taxes on it. So it's actually quite a nice tool for creating a legacy. A couple of things to consider. Make sure that you have assets available to pay the tax liability from another account. So one thing that people forget is, okay, so if I am going to convert, I've got my low income years and I want to convert $100,000. Well, I have to pay taxes on that $100,000. So where am I going to get that money to pay those taxes? So let's just say we're just going to use round numbers and just say it's 15% capital gains tax rate. So you need to pay taxes on the conversion. You're going to have to pull money out of a taxable account. So hopefully you've got money available in taxable accounts. But that is a consideration. You need to have the money to pay the taxes on the conversion, and then you want to make sure that you don't convert too much in a particular year. It used to be that you could make a Roth conversion early in the year and then you could switch it back and take it out of the Roth conversion later in the year. The IRS has done away with that. You can no longer do that. And the reason that's important is let's say that you've converted again. I'm going to use round number $100,000. And at the end of the year, you have some other taxable events that happen. Maybe you get some mutual funds that kick out some capital gains and dividends. And then all of a sudden, now you've converted too much and you've pushed yourself into a higher tax bracket. You don't want to do that. So the idea is again, and Michelle, you'll see this during the demonstration, but the idea is you're trying to fill up what we would call the lower tax brackets here. So if you, if you convert too much, though, you might put yourself up into a higher income bracket. So more than ever, you want to do this at the end of the year, you're going to want to start looking at this November, and you're going to want to execute this in December so that you have your, you know, your taxes in order. I think that's, I think that's about.

Yeah. So we had a couple of questions. I know someone had raised their hand earlier and put it down. I don't know if you want to raise your hand again and ask question.

I apologize. I'm not seeing the question, so I apologize.

That's okay.

Okay.

Someone asked about IRMAA thresholds. We have a chart for that a little bit later.

Yeah, so we do have a slide with that. Yes, we do. So we'll show you that later.

In terms of. There was another question about taxes. The tax liability happens in the year that you make the conversion. No matter if you're doing it for this year, the prior year, or it's when you make the conversion, that's the year that the tax liability is calculated for.

Correct. Because when you pull the money out of the ira, you're creating taxable income.

Yep. And then somebody commented that you need to think about the net investment tax. And yeah, there are different things that will affect your overall, you know, your overall taxes. And that's why it's important to be thinking about the big picture, because when you do one event, it always impacts everything else around it. So even though you might be saving taxes in one area, you might be kind of triggering a new threshold in another area. So that's, that's really the importance of kind of planning, thinking about it, using tools and talking to experts who do this more often, because these are transactions that you do maybe once a year.

And I would also add that. So, you know, the tool, our tool, is great for basically laying out a plan. Right. So you're going to go forward and you're going to look and say, hey, there's an opportunity here to make these Roth conversions. But when it comes down to it, you know, at the end of the year, when you're going to make that conversion, you're going to want to use TurboTax or you're going to want to talk to a CPA to make sure that you're not pushing yourself up into a higher bracket or, you know, are you, you know, you're missing something or there's, I don't know, there's just you're doing one thing that then has an effect somewhere else type of a thing. So it's definitely something you want to work with a tax professional on a year to year basis.

Okay, I gotta find who's raising their hand. Go ahead. Mimi, just a question.

Around conversions, is December 31st the last day to convert for the year or is it kind of similar to like contributing to an IRA where you have until April 15th of the following year to do it for the previous year?

Well, so when you, when you pull the money, it's December 31st, because you're going to pull the money out during that year and it becomes taxable income for that year.

Okay, great.

Thank you. Cool. So I think what we can do now is just switch over to the tool and kind of model how you would do a Roth conversion and look at it. There is a question, can we optimize Roth conversions? Not right now. That's definitely where we're going and what we wanna be able to provide today. It's more of a manual process back and forth, but we do have the tools to kind of help you explore different possibilities and see how that impacts. So hopefully I'll show you how to do that, and then you can try it on your own and see if there's some optimization in your plan. So what I did is I just put together a pretty simple plan to get us started. I used an example of a married couple. I'm calling them Joe and Sally. They both happen to be 60 years old. A little bit more about their situation. They plan to work for the next six years and then they will retire at the age of 66. They're good savers. They each have IRAs. In aggregate, they've saved about a million and a half worth of dollars at the age of 60. And that breaks down. They each have $500,000 in IRAs and about $200,000 in savings. So those are the inputs that I put in. They also have some real estate. But what I want to do to really show you where to go to look for the tax implications is to start with the insights and go to the tax diagrams. Because when you look at the charts, they start to really kind of tell the story just through what you're seeing on the graphs. I like to start here, income by source. This is the second chart on the tax page. And you can go down here and you see that for the first six years there are these orange bars and you're seeing that most of your taxable income is actually coming from work, which makes sense because we said from 60 to 66, they're still going to be working, each making about $60,000. There's also the purple bars, and this represents realized gains. And that's coming from their savings account and their investments between the ages of 67 and 72. So the time when they retire to the time when they have to take RMDs, we see like a big void in their income that's being taxed, okay, because they're going through a period where they don't have a lot of taxable income. And this is really the kind of window when a Roth conversion might be a really good strategy. So you've gone from high earning years to very, very low earning years, or no earning years in this case. And then when they hit 72, they have more income sources to think about. So they have Social Security, which for them is about $65,000 a year. And they also have RMDs. And, you know, they, like I said at the beginning, they started with about $500,000 each, and that doubled over time. So together they have about almost $2 million in tax deferred accounts. So quite a big RMD distribution. In fact, you see that the income is equal to the amount that they had in their working years, if not even more. If you're wondering why they don't have income at age 70 when they started taking Social Security, it's because it's the only income that they have. And they only have about $65,000 coming in from that. So after deductions and the limit of income that you can have to, like, not get taxed on Social Security, they're actually not seeing a liability in those years, even though they started collecting Social Security at age 70.

Michelle, you might want to go to the income chart so you can show the thresholds for taxation.

So, yeah, I mean, we have all different charts. Here is one of the income charts here. This isn't going to show the thresholds for taxation. That's, that's on the text, that's on the tax chart. So that's at the very bottom. This is my next favorite tax chart. So, as you know, when you pay taxes, a lot of times people throw around the term like marginal tax rate. But really what that means is, like, it's the average of the different tax brackets that you're being taxed at. So everybody hits the first threshold and they're taxed at 10%, then the next bucket of money is taxed at 12% and then the next bucket at 22% and all the way up to 37%, where you kind of max out. So this is a really neat chart because it's showing you, like, what percentage of your money are you paying at each tax break. And you can see in this example that at least during the working years, they're really staying within in that 10 to 12% tax bracket. And then we see the tax void where they're paying 0% tax. They're not in any tax bracket. And then as they go to the RMD Social Security, after age 72, they start increasing tax brackets. So their whole life they've stayed in the 10 to 12%. And now because they've done such a good job saving, and their RMDs and Social Security payments are so large, they're in the 22% tax bracket. And so this is the example where we can use the Roth conversion strategy to bring some of that tax liability forward and keep them in a 10 to 12% tax bracket for longer. So one thing I'm going to do, I have this plan and I don't have any conversions. I just wanted to show this other feature that we have because sometimes it's a little bit hidden. We're actually able to manage multiple scenarios in the tool. If I come up here and I say add or manage scenarios, I'm able to create a carbon copy of this plan. And I can create one that instead of says no conversions, I can call it with Conversions. That way I can explore different opportunities without touching my baseline plan so that I can compare it later. So once I create this plan, I'm just going to click activate, and then I have my carbon copy that I'll do my Roth conversions on. I'm going to the savings and assets tab. That's where the Roth conversions are. You can see, as we talked about already, that they each have their own traditional IRA of $500,000. Right now I'm going to scroll, scroll down to the Roth conversion section. And I've already kind of laid this out. We'll do Roth conversions for Sally. And this is her tax window. She has 60. Between 67 and 71 is when we have those low tax scores. And if you go up here to the tax area, we can actually see this reflect in real time on this smaller chart. So we see our window. This maps directly to our area of Roth conversions. And then the other thing I want to point out is your estimated lifetime tax. So up here, this is actually the aggregate of all of these years of tax liability. So every year that you're paying taxes, in this case from 60 to 92 for Joe and 95 for Satley, we're adding up the liability for all these years and showing it here and then further breaking it down with federal and state. But this is an important value because we're gonna see this change over time as we start to model conversions. And that's really an indicator, like, does this make sense? Am I saving money by doing this conversion, or am I increasing my estimated lifetime tax liability? So I'm just gonna start by putting in different amounts. We're going to see this reflected in the chart, but we'll start with $100,000 per year. And then I'll start trying 75. And then maybe in these last two years, because I will have some Social Security income coming in. Because at age 70, I'm starting to take Social Security. I might model a little bit less. So 25,000. And these are just numbers. These are arbitrary. It's a starting point. What I can do to try to optimize is play around with different numbers and kind of look at this chart to see how it's changing my tax liabilities. So as I look over the chart now, before we had that big Void in the tax window. And now we've really filled that up in the 10 and 12% tax bracket. And we see that we started with like $840,000 of tax liability and we've reduced that by nearly $200,000 just by bringing some of these conversions forward. So that's really it. In terms of modeling the Roth conversions, it's rather easy. After you do that, you might want to go back to the tax page and then be able to assess, you know, some learnings from what you did. We can really see how this has changed. If you recall, when I showed this chart the first time, there was a big void in these years. And now we have blue bars that represent our retirement savings withdrawals. And if I scroll down to the bottom point again, we no longer have that tax window. We filled that up and we really streamlined keeping you in a lower tax bracket. And as some people were saying earlier, you know, that has other implications. Staying in a low tax bracket, you're paying less for Medicare. You might, you know, be under for other, other thresholds. So it's really, it's really thinking about holistic planning. I'm going to try to scroll through the questions now or if anyone wants to raise their hand and ask someone, ask. That's fine too.

Feels like for some people there could be a total break even analysis of like, is it even worth working to a certain point? You know, is there so much tax savings available? Is it worth taking time off to drive your income down?

Yeah, definitely.

So Michelle, do we want to go through the questions then?

Yeah, let me just do, let me do one thing. Someone had asked a question earlier about excess tax. So I can just kind of quickly cover that. Maybe on the.

And when you're going there, I see the question about, you know, the ability to do scenarios side by side. So that's something we're working on. Andy's been designing it. You will be able to, we're going to call it with a very new ux the latter half of this year. That'll let you do visually see scenarios side by side.

Yeah, There was a question earlier about excess income. This is on my plan work and other income towards the bottom of the page. I think it's a good question to cover because we get that a lot. What happens is sometimes you make more money than you expected either because of the returns or inflation or you have extra money that you haven't actually allocated in your plan towards expenses. So when that happens, we have extra money and we need to know what to do. With it. If you want all extra income to go to savings, your savings account, then you just put 100% here. If you think that if you have extra money you're going to spend it on vacation or consumables or gifted or do something else, then you can choose another percentage and we might say that 80% goes to savings and 20% will be spent. So happy to talk about this more.

Yeah, I'll jump in too. So this is maybe one of our most questioned features is this little toggle right here. We're talking internally about what exactly to do about that. I'll leave it there. Feedback's great. Whether you think it's useful, how much you want to use it, all that we could just go default to 100% any excess income you get that income. We're talking about potentially doing that that's potentially in the future. Other stuff I'm seeing some besides the questions on scenario side by side. Yeah, we're absolutely going to do that. Totally going to do that. I think it's a no brainer. I'm excited to build that. Probably looking second half of. Well I guess we're already in second half of 2020 so it's going to be in the second half of 2020. Time flies when you're in a global pandemic. I guess the other thing is like you know, not knowing that you could do the tax image while you're modeling the raw scenario. You know I think one of the things we'll look to do is like Steve is alluding to, we're going to be changing the UX and we're still discussing exactly what that design looks like. But one of the number one things we'll do is probably make those charts on the right larger so you can see see them more easily and have it be more fluid as far as when you're changing the inputs, seeing the results on your plan as well as suggesting some beneficial things you could do, whether that's by optimizer, whatever, all sorts of great stuff there. So keep the feedback coming. It's useful for us to see this.

I think Mimi has another question.

This is kind of tangentially related to the Roth lottery. So when we go into like the. Not on your retirement but if you go into like the Social Security website, I think that when they project how much you get from Social Security, I don't actually know the answer to this. It presumes certain things like that you've been working for a certain number of years and I'm wondering with your Social Security calculator if it presumes that you work the full, whatever the full amount of time is that the Social Security folks are presuming that you work. It's like 30 years or whatever or if there might be a way where you can tweak it. And the reason I ask this is like, you know, in my situation I'm looking to retire early. So I probably won't get in the full 30 years. I'll probably get in, I'll just make up a number. But 25 years and if that's the case, that probably change. I'm guessing they'll change what I end up being able to collect from Social Security depending on whatever age it is I collect. So it's very long winded question, but I don't know, a shorter way of asking it.

Yeah, you take it. I'll take this. I can take this question. So, yeah, Social Security basically assumes takes the average of your highest 35 years of work income and they do make projections based on your working history what they think that's going to look like. We can take that as a potential enhancement request. I mean, you know, today we don't basically today we're indexing off of, you know, we actually recommend to people and point them to the My Social Security account. So you should go create an account, claim it. So no one else does use that data in the system. They may have a tool in there where you can actually override and put in your income. Bill may have a. Yeah, no, they do.

So there's a calculator in there. There's a calculator at the Social Security website that will enable you to basically say I'm not gonna, you know, I'm gonna stop working at this particular age and I'm not gonna have any income for the next couple of years. So yes, there is a calculator that will allow you to essentially adjust your pia, which is your primary insurance.

Okay, that's great to know.

Thank you. Okay, Bill, there's a question. If you don't have enough after tax money on hand to pay for taxes, when does it still make sense or not to to do a Roth conversion?

I mean, I guess it depends on where, you know, where you're getting that money to pay the taxes from. Right. So if you're getting it from a taxable account, then I think you're going to have to look at the taxes on the capital gains relative to what you're saving. So all of these things, it's, you know, they're all very specific to the user and you kind of have to go into the calculator and just I think, see what works. You know, if you are over the age of 60, you could take money, more money out of your tax deferred accounts to pay the taxes on your, on your Roth conversion. But then of course you're, you know, you're creating more taxes than you originally had planned on. So I mean, I can't answer that question because there's, there's not going to be one right answer for, you know, for, for everybody. You're really going to have to go into the calculator and look at that. And that's something that's, again, it's, it's going to take some planning for sure.

There is a question about providing present values of lifetime values still on the TBD list. It is still on the to be determined list. And I will say that we really kind of make a lot of decisions based on user feedback. And if you're asking for different features or people are talking about it. So if you do have ideas for things that you're trying to model or what you're trying to do, we really appreciate when you let us know because it does really impact what we focus on next. Let's see. Okay, so more conversation. I don't know if anyone has a question. If not, we can.

I think we should clarify Raul's question.

Oh, go ahead.

I am sorry, I'm reading to the bottom. So the first point is using the optimistic and pessimistic rates as the parameters for the simulation. Not exactly. We actually run a simulation and we plot it alongside the pessimistic and optimistic rates so that you can see it on the same graph. But we're not necessarily using those factors as the inputs. Apologies if that's a little bit confusing.

And then regarding kind of user. Alex. So basically what's happening today is we're using your optimistic and pessimistic rate to essentially set the volatility of. For the Monte Carlo simulations. The next evolution of this, we will be using your allocation. So either you'll enter it or will pull it from your linked accounts and use that to drive the simulations.

Yeah, sorry, I was just reading to the bottom. That's right. And then, you know, in the future we will almost certainly especially get user feedback indicating be pulling in more information on your investment holdings, specific holdings. We can do things like, well, obviously we can track them, track the values over time. But then, you know, you can analyze like three fees on different funds you have and give different suggestions on Asset allocation and that sort of stuff. And if we have, like, your specific holdings and a little more information on your actual accounts, then we'll be able to estimate the returns and then vary the simulations that get stronger as a result.

Right. I mean, what we're looking at is, so there's what you have today, there's also the contributions that you're making, and then there's are you going to be rebalancing automatically or not? So there's a lot of complexity that goes. Or a lot of ways that Monte Carlo can get a lot richer over time. We've done some work in this area in the past, our team. So we'll be evolving it and kind of communicating how it's evolving over time.

Hey, Leonard. Leonard's getting crazy. He's taken reverse mortgages, pay the taxes on his Roth conversion. I love it, man. Let's get wild. I'll let Steve.

That could work.

Yeah, I think so. We are definitely. We do want people thinking about how to use all of their assets. Right. So when we think about retirement, it's worth thinking about your human capital, your home equity. Right. Do you want to use debt? I mean, you can use margin accounts, and as long as you're operating within a risk threshold that is comfortable for you and very unlikely to result in a liquidity crisis for you, causing you to sell assets or something when you don't want to, then, yeah, you can use debt. I mean, it may make sense to, like, hey, I need to, for instance, like in a given year, if you wanted to make an A, I've done this, like a strategy I was doing is I was actually taking taxable money, taxable savings, and making, you know, 401k contributions to drive down my AGI income in a given year, because it made sense for me. So could you use debt to this stuff?

Sure.

You can do that kind of stuff. And will we do this kind of analysis? Yes, but going forward. So we'll be thinking about it that way.

Cool.

We're.

So we're just about at an hour.

I think we should probably wrap this up. Michelle, you want to close it up?

Sure. Well, everyone, thank you for coming. Look forward to more Ask me anythings. I'll be sending out additional emails. If you have specific topics or features you want us to cover in the future, Definitely, let me know. But thanks for joining.

Yeah, we appreciate your time. We'll be trying to host these on a regular basis, so I'll look for schedule in the group. Okay, thanks.

Thank you.

Thanks.

Bye. Bye.