by Carolyn Rothwell on March 23, 2017

Illustrating Roth IRA Conversions / Rollovers in TOTAL


Converting a traditional IRA (or any other eligible retirement plan) to a Roth IRA is simple to illustrate in TOTAL by using the Monthly Additions/Withdrawals tab of the Asset Details input.  

Let's walk through a one-time rollover. The client wants to roll $60,000 from an IRA to a Roth IRA at age 65. Start by going to Assets. 

Step 1 – IRA Withdrawal:

  • Select the asset to move money from, the IRA in this example, for the conversion.
  • Go to Future Changes (in the desktop edition go to the Monthly Additions/Withdrawals tab). Enter the age of the withdrawal and the amount as a negative number in the Monthly $ Amount column. In this example, the entry would be age 65 and a negative amount of $5,000.
  • In the next row of the future change table, enter the client’s age the following year with all 0s in the remaining columns. Entering age 66 with no dollar amounts indicates the withdrawal will only occur 1 year at age 65.

IRAWithdrawal

Step 2 – Contribution to Roth IRA:

  • Select the Roth IRA to accept the converted the funds. If the client does not already have a Roth IRA, create a new Roth IRA asset with a current balance of $1.
  • Go to the Future Changes table for the Roth IRA. In the future change table, enter the age of the conversion, 65, in the age column. Enter the positive monthly amount that will be transferred to the Roth IRA, $5,000 for this example, in the Monthly $ Amount column.
  • In the next row of the future change table, enter the client’s age the following year, 66 for this example, with all 0s in the remaining columns. This tells the program the contribution will only occur 1 year at age 65.

RothIRAAddition

Step 3 – Easy Money Only (Conversion Prior to Retirement)

This step is required when the conversion occurs prior to Ind. 1’s retirement age, for Easy Money only.  If a scheduled withdrawal occurs prior to retirement, Easy Money will display the withdrawal amount as an income source available for automatic reinvestment.  To avoid the automatic reinvestment, use an Other Expense to offset the scheduled withdrawal.

  • Using the example above, the $5,000/Month scheduled distribution from the Roth would display as an income source of $60,000 on the Retirement Capital Estimate in the year of the conversion (if it occurred prior to Ind. 1’s retirement age).
  • To avoid the automatic reinvestment of the $60,000, go to the Other Income/Expense tab in the Income input, and add a corresponding expense amount.
  • The entry could be described as “IRA Withdrawal Offset”.
  • Enter Individual 1’s age in the year of conversion and a negative dollar amount, ($60,000).
  • Enter the Individual 1’s age the following year and all zeros in the remaining columns to stop the expense in the next row.

The result of these entries is $60,000 moved out of the traditional IRA and a corresponding $60,000 moved into a Roth IRA at age 60.

The program will charge taxes on the amount pulled from the traditional IRA. You may reduce the contribution into the Roth IRA if they are paying the tax expense from the IRA withdrawal, rather than covering the tax expense from other sources.

RothConversionReport.png

A staged rollover may be done in the same manner (for example rolling 1/3 of the account each year for 3 years), by entering the amount you wish to move out in each year, and the same amount to move into the Roth in the same years. Just remember to enter an age to stop the withdrawals and additions, again leaving by entering $0 under the Monthly $ Amount column.

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Carolyn Rothwell

Carolyn enjoys spending her time building Money Tree Software's brand and products. Her experience creating and delivering financial plans for a full-service financial planning firm and supporting advisors working to provide the best planning to their clients as a Money Tree support member has provided an excellent understanding of the importance financial planning.