Methodology · Roth conversions
Roth conversion modeling: methodology and assumptions
Quantum sizes Roth conversion options to a federal bracket the advisor selects, prices each conversion year with the full tax engine, and compares lifetime tax and after-tax wealth with and without the conversions. The advisor makes the decision — Quantum calculates.
In industry terms, this is bracket-filling conversion sizing with year-by-year with-and-without tax pricing (the Delta Method) and a lifetime tax-cost comparison.
What Quantum produces: Modeled Conversion Options
For a client, Quantum produces up to three Modeled Conversion Options, one for each federal bracket ceiling above the client's current marginal rate. Each option's annual conversion is the amount that lands the household's taxable income exactly on that bracket ceiling, solved by bisection with the Social Security inclusion re-evaluated at every step, so a conversion that makes more Social Security taxable is sized smaller. A default option is highlighted: the lowest bracket that completes the conversion target within the conversion window.
Each option shows its gross conversion, the net amount reaching the Roth after withheld taxes, the years to complete, the federal and state tax created, the Medicare IRMAA effect, the household's income before and after, and a year-by-year schedule. A separate True Cost view compares the lifetime tax and after-tax wealth of converting at the selected bracket against not converting.
Calculation flow
In the order the engine actually runs it.
- 01 Client data Balances reconciled across named accounts, income by source, filing status, state, and the ages of both spouses. State, age, and filing status are required inputs; the engine never substitutes a default for them.
- 02 Tax position in the conversion start year Social Security (with its inclusion computed), pensions, wages, other guaranteed income, and the forced RMD for that year establish taxable income before any conversion.
- 03 Conversion amount The year's RMD is taken first; only the excess above it is convertible. The conversion is sized to the selected bracket ceiling from that base.
- 04 Federal tax, with and without The household's federal tax is recomputed with and without the conversion; the difference is the conversion's federal cost, including any Social Security it makes taxable.
- 05 State tax The same with-and-without recomputation at the state level, with the conversion routed through the state's retirement-income exclusion wherever the statute treats IRA distributions as excludable.
- 06 Medicare IRMAA The Part B and Part D surcharge created by the conversion, applied per Medicare beneficiary in the household.
- 07 Roth balance The gross conversion less all withheld federal and state tax is credited to the Roth account. Taxes are modeled as withheld from the distribution, and the product labels that assumption beside the result.
- 08 Year-by-year schedule The traditional balance falls by each year's conversion and RMD and grows at the advisor's growth rate; the schedule runs to the horizon age.
- 09 RMD reduction Future RMDs are recomputed on the reduced traditional balance using the client's SECURE 2.0 start age and the Uniform Lifetime Table.
- 10 Lifetime comparison Conversion taxes plus the taxes on remaining RMDs plus attributable IRMAA on the conversion path, against RMD taxes plus attributable IRMAA on the no-conversion path, and after-tax wealth at the horizon with the remaining traditional balance valued at the household's all-in marginal rate.
Advisor-controlled assumptions
| Assumption | Who controls it | Notes |
|---|---|---|
| Bracket selection | Advisor | Up to three bracket ceilings above the current marginal rate are offered |
| Conversion target | Advisor | Overrides the reconciled convertible balance; capped at the convertible pool |
| Conversion start age | Advisor | The schedule genuinely waits; intervening years follow growth and forced RMDs |
| Growth rate | Advisor; firm default otherwise | Applied to the traditional and Roth balances in the schedule |
| Horizon age | Advisor; firm default otherwise | The end of the year-by-year schedule and the lifetime comparison |
| Future-rate scenario | Advisor; firm default otherwise | An additive shift to ordinary rates from a start year; zero turns the scenario off |
| Qualified charitable distributions | Advisor | Reduce the taxable portion of each RMD |
| Tax law and IRMAA tables | Firm | Tax year 2026, shown in the product |
Future tax rates
Tax year 2026 law is held constant for every projected year. To express the view that rates may rise, the advisor sets an additive shift to ordinary rates beginning in a chosen year; the shift is applied symmetrically to both the conversion and no-conversion paths, conversions completed before the shift year keep today's rates, and the product labels the result as a scenario.
Medicare IRMAA and secondary effects
IRMAA is priced inside the with-and-without comparison for every schedule year, for Part B and Part D, counting two Medicare beneficiaries on a joint return only when both spouses are 65 or older. The lifetime ledger applies the two-year income lookback, so a conversion at one age bills at the next-plus-one; the figure on each option card is the same-year effect, and the product notes the difference. Tier crossings are flagged with the cliff amount.
Reducing RMDs is not, by itself, a benefit
A conversion mechanically lowers future RMDs, but a conversion is not beneficial merely because it reduces RMDs. Quantum's lifetime comparison is deliberately apples-to-apples: the tax on the full traditional balance's RMDs is never compared against the conversion tax on a partial balance. The outcome can be a net cost, and when it is, the product states that converting is projected to increase the household's lifetime taxes.
Assumptions
| Assumption | What Quantum does |
|---|---|
| Sizing method | Fills the selected federal bracket ceiling, re-solving Social Security inclusion at each step |
| Tax pricing | Full with-and-without recomputation each year: federal, state, and IRMAA |
| Future tax law | 2026 law held constant, plus an advisor-set rate-shift scenario |
| IRMAA lookback | Two years in the lifetime ledger; same-year on option cards |
| RMD start | SECURE 2.0 age by birth year; Uniform Lifetime Table |
Questions advisors ask about Roth conversion modeling
- What conversion options does Quantum produce?
- Up to three Modeled Conversion Options, each sized to fill a federal bracket the advisor can select. Quantum prices every year with the full tax engine and reports the lifetime comparison for the bracket chosen. The advisor decides.
- How are conversion amounts sized?
- Each year's conversion is the amount that lands taxable income exactly on the selected bracket ceiling after that year's RMD, solved by bisection with Social Security inclusion recomputed at every step.
- How are future tax rates handled?
- Tax year 2026 law is held constant, and the advisor can layer an additive rate-shift scenario from a chosen year that applies to both paths.
- Is Medicare IRMAA included?
- Yes — Part B and Part D, per beneficiary, priced inside each year's with-and-without comparison, with the two-year lookback applied in the lifetime ledger.
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