Feature Enhancement: Released July 29, 2025
We’ve improved the functionality of the Roth Conversion feature, allowing you to model conversions to your own Roth accounts.
"Virtual Account" Migration
To support this, we’re updating older conversions, specifically those created before you could assign them to real Roth accounts.
We took a careful approach to help make sure your Chance of Success didn’t change during the update:
If your plan included a Roth account with the same rate of return as the account you’re converting from, we’ve assigned the conversion to that.
If not, we created a new Roth account using the same rate of return as the source account.
What are the benefits of this feature enhancement?
This feature enhancement enables you to better control the converted funds. You may now model a different expected rate of return on the converted funds, as well as access the converted funds to pay expenses.
How does it work in the Roth Conversion Explorer?
If you don't currently have a Roth account in your plan, we will create one for you. The default rate of return on the system created Roth account is 8.08%. This means that your plan projections could change if the destination Roth account has a different rate of return than your source pre-tax account.
Old way: the destination virtual Roth conversion accounts that were created assumed the same rate of return as their source pre-tax account
New way: since the conversions will now go into an existing (or created by us) Roth account, it now assumes the rate of return as the destination Roth account
Due to this change, you may want to review the rate of return assumptions on your pre-tax account and your Roth account. If the Roth account has a higher rate of return, that often comes with higher volatility (a higher standard deviation).
How does it work in Money Flows?
The Roth Conversion feature and Roth Conversions will be added as Transfers. You may press the pencil icon ✏️ to view and manage your Roth Conversions.
Why might you hold a higher stock allocation in a Roth account than a pre tax account? These are a few reasons:
Maximize Tax-Free Growth
Since Roth IRAs grow tax-free, you want assets with the highest expected return (stocks) to take full advantage of compounding growth without future tax liability. Bonds and cash generate lower returns, which reduces the long-term tax benefit of the Roth.
Avoid Required Minimum Distributions (RMDs)
Unlike Traditional IRAs, Roth IRAs do not have RMDs during your lifetime. This makes them an ideal place for long-term, high-growth investments that can compound tax-free for decades.
Efficient Asset Location (Tax Strategy)
A common tax-efficient investing strategy is to put higher-growth assets (stocks) in tax-free accounts and lower-growth assets (bonds) in tax-deferred or taxable accounts. Holding bonds in a Traditional IRA defers taxes on the lower returns, while stocks in a Roth IRA eliminate capital gains tax entirely.
Longer Investment Horizon
If you plan to leave the Roth IRA to heirs, it can grow tax-free for their lifetime as well. The longer the time horizon, the more valuable it is to hold higher-growth investments in the Roth.
Protecting Against Future Tax Increases
If tax rates increase in the future, Roth withdrawals remain tax-free, meaning you won’t be taxed on the gains. Higher stock returns in a Roth can shield more wealth from future taxation.