Roth Conversion & ACA Subsidy Optimizer
Launch Live CalculatorThe Purpose (Why?)
Strategically projects traditional withdrawals and Roth conversions to minimize ACA (healthcare) costs and taxes while maximizing terminal wealth. It models the complex interaction between MAGI, ACA subsidies, and long-term portfolio growth.
How it Works
Enter your current account balances and expected retirement spending. The calculator will run multiple simulation passes to find the effective income target for each year, balancing immediate tax/healthcare savings with future RMD risks and tax-free growth.
Foundational Research
Read the core research article to understand how healthcare premiums and dynamic tax optimization interact within this planning model:
Input Specifications
| PARAMETER | DETAILS |
|---|---|
| Portfolio & Spending | |
| Traditional Balance ($) | Starting balance in tax-deferred accounts (IRA/401k). EXAMPLE: $1,150,000 |
| Roth Balance ($) | Starting balance in tax-free accounts (Roth IRA/401k). EXAMPLE: $0 |
| Cash Balance ($) | Starting balance in taxable brokerage or cash accounts. EXAMPLE: $0 |
| Target Spend ($) | Annual after-tax spending goal in today's dollars. EXAMPLE: $100,000 |
| Cash in Taxable (%) | Percentage of taxable account held in interest or ordinary-dividend producing assets (like cash or bonds) vs. stocks. Used to differentiate between ordinary income and lower-taxed capital gains. I.E. 80% means 80% of your taxable account is in interest or ordinary-dividend producing assets and 20% is in stocks. EXAMPLE: 50% |
| Timeline & Security | |
| Retire Age | Age at which you plan to retire and want to start the simulation (minimum age: 30). If you use a value less than 65, the Avoid Medicaid option will be used; see below. EXAMPLE: 60 |
| Final Age | Age at which you plan to stop the simulation. The simulation will run for this many years and fail if you run out of money. EXAMPLE: 95 |
| SS Benefit ($) | Annual Social Security benefit at full entitlement age. EXAMPLE: $80,000 |
| SS Start Age | Age at which you plan to start Social Security. EXAMPLE: 67 |
| Household Size | Number of people in the household for ACA subsidy calculation. EXAMPLE: 1 |
| Spouse Age Diff | Age difference with spouse (negative if spouse is younger). (Only used if filing status is Married, Filing Jointly. Otherwise ignored.) EXAMPLE: 0 |
| Supplemental Income ($) | Additional fully taxable ordinary income (e.g., pension, part-time work, rental income) received annually. EXAMPLE: $0 |
| Supplemental End Age | The age at which the supplemental income stops. EXAMPLE: 95 |
| Market & Geography | |
| Real Return (%) | Expected average annual real return (inflation-indexed). EXAMPLE: 4.0% |
| State | State of residence (impacts Medicaid floor targets). EXAMPLE: CO |
| Filing Status | Tax filing status. EXAMPLE: Single |
| ACA Premium (Per Person) ($) | Annual unsubsidized cost for a Silver ACA plan per person. (Only used if you retire before 65 and check the Avoid Medicaid box.) If you have multiple people on ACA, enter the average cost for one person. EXAMPLE: $14,000 |
| Analysis Options | |
| Avoid Medicaid (Keep MAGI high enough) | Ensures annual income (MAGI) stays above Medicaid thresholds (state required % of FPL). This prevents Medicaid enrollment and maintains eligibility for ACA Premium Tax Credits (PTC). Only used when Start Age is less than 65. EXAMPLE: Checked |
| Enable SEPP (Rule 72t) | Only relevant when Start Age is below 60. If checked, the engine applies a Substantially Equal Periodic Payment (SEPP / Rule 72t) schedule, allowing penalty-free Traditional IRA withdrawals up to the IRS-calculated annual limit. Withdrawals above this limit still incur the 10% early withdrawal penalty. If unchecked, all Traditional IRA withdrawals before age 60 are subject to the 10% penalty. See the FAQ for more details. EXAMPLE: Unchecked |
| Prioritize Roth Bequest | If checked, forces the simulation to aggressively deplete the Traditional IRA balance to $0 by the end of the simulation. See FAQ for details regarding how terminal wealth is calculated. EXAMPLE: Unchecked |
| Legacy Tax Rate (%) | The estimated effective tax rate your heirs will pay. Used to calculate the "Heir Utility" metric in the final report. EXAMPLE: 20.0% |
Example Visualizations
Example Output
View a high-fidelity, interactive sample report generated by this simulation engine.
View Sample Simulation ResultFrequently Asked Questions
The calculator runs a strategic multi-year simulation to find the optimal Traditional IRA withdrawal amount for each year. It balances the immediate cost of healthcare premiums (by targeting specific MAGI cliffs) against the long-term tax benefits of moving money into a tax-free Roth account.
To find the mathematically superior strategy, the engine converts all final account balances into a single "Purchasing Power" metric. This requires two distinct adjustments: 1. Principal Adjustment (Traditional IRA): Traditional dollars are discounted by your estimated future tax rate (e.g., $1.00 is worth $0.85 if your tax rate is 15%) because you still owe income tax on that principal. 2. Yield Adjustment (Roth vs. Taxable): Roth is worth more than taxable cash because its growth is tax-free. The engine calculates a dynamic "Roth Value Factor" based on the remaining simulation years. Over 10 years at 5% returns and a 15% tax rate, this creates a ~1.074x premium for Roth. Note on Horizons: In standard mode, this premium naturally tapers to zero on the final day of the simulation (maximizing your "Lifetime Power"). If Prioritize Roth Bequest is enabled, the engine enforces a minimum 10-year growth horizon for the final valuation to maximize the "Estate Value" for your heirs.
The Legacy Tax Rate is used to calculate the Utility to Heirs perspective in your audit report. Unlike your own personal tax rate, which the engine uses to find the best strategy for you, the Legacy Tax Rate shows you how much "spendable" wealth you are actually leaving behind after your heirs pay their estimated income taxes on any remaining Traditional IRA funds.
No. IRS rules state that RMDs must be taken first and are not eligible for rollover or conversion to a Roth IRA. The AlgorithmicFIRE engine correctly models this: it ensures your full RMD is withdrawn as ordinary income first, and only allows additional withdrawals (above the RMD amount) to be converted to your Roth account.
Under IRS Rule 72(t), Substantially Equal Periodic Payments (SEPP) allow you to withdraw funds from your Traditional IRA before age 59½ without the 10% early withdrawal penalty. The calculator models the Amortization method, calculating a fixed annual penalty-free withdrawal limit based on your starting retirement balance and the IRS Single Life Expectancy table at a standard 4.0% interest rate. To avoid penalties on the entire schedule, SEPP payments must continue for at least 5 years or until you turn 59½ (whichever is longer). Any Traditional IRA withdrawals exceeding this calculated limit during that period will incur the 10% penalty. For more information, see the official IRS Substantially Equal Periodic Payments guide.
The IRS allows three methods to calculate SEPP payments: the Required Minimum Distribution (RMD) method, the Fixed Annuitization method, and the Fixed Amortization method. This calculator uses the Fixed Amortization method as it typically produces the highest annual withdrawal. The RMD method recalculates payments each year based on account balance and life expectancy, while the Annuitization method uses an annuity factor. Each method has significant rules and constraints. Always consult a qualified tax professional before establishing any SEPP schedule — violating the schedule can result in retroactive 10% penalties plus interest on all prior withdrawals.