Each gap below is marked by its effect:
- Optimistic your tax is likely understated, or your plan looks better than it is
- Conservative your tax is likely overstated, or your plan looks worse than it is
- Depends it can go either way
- Minor a small effect either way, unlikely to change your results noticeably
If several optimistic items apply to you, understand that this may skew your results.
Health insurance and Medicare
Optimistic
ACA premium subsidies. Extra income (a Roth conversion, a large gain) can cost marketplace subsidies, and the loss can be a cliff.
Affects: Anyone retiring before 65 on marketplace insurance
Optimistic
IRMAA Medicare surcharges. Income two years earlier can raise Medicare Part B and D premiums, in steps.
Affects: Higher-income retirees 63 and over, especially those doing conversions
| Not modeled | Who it affects | Effect |
|---|
| ACA premium subsidies. Extra income (a Roth conversion, a large gain) can cost marketplace subsidies, and the loss can be a cliff. | Anyone retiring before 65 on marketplace insurance | Optimistic |
| IRMAA Medicare surcharges. Income two years earlier can raise Medicare Part B and D premiums, in steps. | Higher-income retirees 63 and over, especially those doing conversions | Optimistic |
These two are the most likely reason a real Roth conversion plan should be less aggressive than Fikata might suggest.
Retirement accounts
Optimistic
The five-year rule on Roth conversions (10% penalty on converted money withdrawn within five years, before 59½)
Affects: Early retirees running a conversion ladder
Conservative
After-tax IRA basis and the pro-rata rule (Form 8606). Every conversion and withdrawal is treated as fully taxable.
Affects: Anyone with non-deductible IRA contributions, including backdoor Roth users
Conservative
Penalty-free Roth IRA contributions. Contributions can always be taken out without penalty, but before 59½ the 10% penalty is charged on the whole withdrawal, not just the earnings.
Affects: Early retirees drawing on a Roth IRA before 59½
Conservative
The rule of 55: leaving a job in or after the year you turn 55 makes that employer’s 401(k) or 403(b) penalty-free. Fikata charges the penalty until 59½.
Affects: People retiring between 55 and 59½ with a 401(k) or 403(b)
Optimistic
The traditional IRA deduction phase-out for people covered by a workplace plan
Affects: Higher earners contributing to a traditional IRA alongside a 401(k)
Optimistic
The Roth IRA income limit. Direct Roth IRA contributions phase out at higher incomes, but Fikata lets anyone with earned income contribute.
Affects: Higher earners saving into a Roth IRA
Conservative
The Joint Life table for RMDs when a spouse is the sole beneficiary and more than 10 years younger
Affects: Couples with a large age gap
Depends
Inherited IRAs, the still-working exception to RMDs, and 401(k) plans that don’t allow in-service conversions
Affects: Those specific situations
| Not modeled | Who it affects | Effect |
|---|
| The five-year rule on Roth conversions (10% penalty on converted money withdrawn within five years, before 59½) | Early retirees running a conversion ladder | Optimistic |
| After-tax IRA basis and the pro-rata rule (Form 8606). Every conversion and withdrawal is treated as fully taxable. | Anyone with non-deductible IRA contributions, including backdoor Roth users | Conservative |
| Penalty-free Roth IRA contributions. Contributions can always be taken out without penalty, but before 59½ the 10% penalty is charged on the whole withdrawal, not just the earnings. | Early retirees drawing on a Roth IRA before 59½ | Conservative |
| The rule of 55: leaving a job in or after the year you turn 55 makes that employer’s 401(k) or 403(b) penalty-free. Fikata charges the penalty until 59½. | People retiring between 55 and 59½ with a 401(k) or 403(b) | Conservative |
| The traditional IRA deduction phase-out for people covered by a workplace plan | Higher earners contributing to a traditional IRA alongside a 401(k) | Optimistic |
| The Roth IRA income limit. Direct Roth IRA contributions phase out at higher incomes, but Fikata lets anyone with earned income contribute. | Higher earners saving into a Roth IRA | Optimistic |
| The Joint Life table for RMDs when a spouse is the sole beneficiary and more than 10 years younger | Couples with a large age gap | Conservative |
| Inherited IRAs, the still-working exception to RMDs, and 401(k) plans that don’t allow in-service conversions | Those specific situations | Depends |
Investments
Dependshigher long-run returns, but deeper drawdowns
Bonds and other asset classes. Every investment is modeled as the S&P 500, whatever the account actually holds.
Affects: Anyone holding bonds, international stocks or other assets
Dependstoo much cash for some, too little for others
A flat $50,000 emergency fund. The savings ladder fills it before tax-advantaged accounts, whatever your expenses are.
Affects: Households whose real cash cushion is much smaller or larger
Conservativeslightly
Saving into 529 plans. Spare cash never goes into a 529, so money you’d set aside for college grows in a taxable account instead.
Affects: Families saving for college
Optimistic
Tax on dividends. Returns include dividends, reinvested, but a taxable account pays no yearly tax on them; its gains are taxed only when sold.
Affects: Anyone with a taxable brokerage account
Conservative
Choosing which lots to sell. Shares are sold roughly oldest first, and today’s holdings are one lot at a blended cost.
Affects: Anyone who would sell high-basis lots first
Optimistic
The wash-sale rule
Affects: Plans that harvest losses
Optimisticslightly
A holding entered with its basis is assumed to be held over a year
Affects: Anything bought within the last year
Conservativeslightly
An unused capital-loss deduction in a year with almost no income is lost rather than carried forward
Affects: Rare, small
| Not modeled | Who it affects | Effect |
|---|
| Bonds and other asset classes. Every investment is modeled as the S&P 500, whatever the account actually holds. | Anyone holding bonds, international stocks or other assets | Dependshigher long-run returns, but deeper drawdowns |
| A flat $50,000 emergency fund. The savings ladder fills it before tax-advantaged accounts, whatever your expenses are. | Households whose real cash cushion is much smaller or larger | Dependstoo much cash for some, too little for others |
| Saving into 529 plans. Spare cash never goes into a 529, so money you’d set aside for college grows in a taxable account instead. | Families saving for college | Conservativeslightly |
| Tax on dividends. Returns include dividends, reinvested, but a taxable account pays no yearly tax on them; its gains are taxed only when sold. | Anyone with a taxable brokerage account | Optimistic |
| Choosing which lots to sell. Shares are sold roughly oldest first, and today’s holdings are one lot at a blended cost. | Anyone who would sell high-basis lots first | Conservative |
| The wash-sale rule | Plans that harvest losses | Optimistic |
| A holding entered with its basis is assumed to be held over a year | Anything bought within the last year | Optimisticslightly |
| An unused capital-loss deduction in a year with almost no income is lost rather than carried forward | Rare, small | Conservativeslightly |
Real estate
Optimisticsometimes significantly
Passive activity loss limits. A rental loss offsets your other income in full; the law caps this at $25,000 and phases it out between $100,000 and $150,000 of income.
Affects: Landlords with leveraged rentals, especially at higher incomes
Conservative
1031 exchanges
Affects: Landlords who would exchange rather than sell
Optimistic
The home-sale exclusion’s two-of-five-year residence test and once-every-two-years limit
Affects: People who move often
Conservative
A surviving spouse’s two years of the $500,000 exclusion (Fikata uses $250,000)
Affects: A home sold soon after a spouse’s death
Optimistic
The $750,000 limit on deductible home mortgage interest
Affects: Itemizers with large mortgages
Conservative
Property tax in the SALT deduction
Affects: Homeowners who itemize, where the cap doesn’t already bind
Minor
Separate depreciation schedules for improvements, and partial first and last years
Affects: Landlords
Optimistic
Tax on selling a business, collectibles or other non-real-estate assets
Affects: Anyone planning to sell one at a gain
| Not modeled | Who it affects | Effect |
|---|
| Passive activity loss limits. A rental loss offsets your other income in full; the law caps this at $25,000 and phases it out between $100,000 and $150,000 of income. | Landlords with leveraged rentals, especially at higher incomes | Optimisticsometimes significantly |
| 1031 exchanges | Landlords who would exchange rather than sell | Conservative |
| The home-sale exclusion’s two-of-five-year residence test and once-every-two-years limit | People who move often | Optimistic |
| A surviving spouse’s two years of the $500,000 exclusion (Fikata uses $250,000) | A home sold soon after a spouse’s death | Conservative |
| The $750,000 limit on deductible home mortgage interest | Itemizers with large mortgages | Optimistic |
| Property tax in the SALT deduction | Homeowners who itemize, where the cap doesn’t already bind | Conservative |
| Separate depreciation schedules for improvements, and partial first and last years | Landlords | Minor |
| Tax on selling a business, collectibles or other non-real-estate assets | Anyone planning to sell one at a gain | Optimistic |
Deductions and credits
Conservative
Tax credits: child tax credit, saver’s credit, and others
Affects: Families with children; lower-income savers
Conservative
Charitable and medical itemized deductions
Affects: Generous givers; people with large medical bills
Conservative
The QBI deduction (up to 20% of qualified business income)
Affects: Self-employed people and business owners
Optimistic
The Alternative Minimum Tax
Affects: Some high earners, especially with incentive stock options
Conservative
The extra standard deduction for blindness
Affects: Those who qualify
| Not modeled | Who it affects | Effect |
|---|
| Tax credits: child tax credit, saver’s credit, and others | Families with children; lower-income savers | Conservative |
| Charitable and medical itemized deductions | Generous givers; people with large medical bills | Conservative |
| The QBI deduction (up to 20% of qualified business income) | Self-employed people and business owners | Conservative |
| The Alternative Minimum Tax | Some high earners, especially with incentive stock options | Optimistic |
| The extra standard deduction for blindness | Those who qualify | Conservative |
Work and self-employment
Dependson how it’s entered
S-corp salary and distributions in a single income stream. Enter them as two streams (salary as wages, distributions as business income) to model correctly.
Affects: S-corp owners
Optimisticslightly
The Social Security wage base rises with prices rather than average wages
Affects: High earners, over long simulations
Understates the employee arrangement’s true cost
The employer’s half of FICA
Affects: Comparing a salary offer to self-employment at the same headline pay
| Not modeled | Who it affects | Effect |
|---|
| S-corp salary and distributions in a single income stream. Enter them as two streams (salary as wages, distributions as business income) to model correctly. | S-corp owners | Dependson how it’s entered |
| The Social Security wage base rises with prices rather than average wages | High earners, over long simulations | Optimisticslightly |
| The employer’s half of FICA | Comparing a salary offer to self-employment at the same headline pay | Understates the employee arrangement’s true cost |
Filing status and family
Depends
Marriage or divorce changing filing status partway through a plan
Affects: Those expecting either
Conservative
Qualifying surviving spouse status (joint brackets for two years with a dependent child)
Affects: A widow or widower with a dependent child
Conservative
Survivor benefits aren’t added automatically. When a spouse dies, their salary, pension and Social Security stop; a survivor pension or survivor benefit is only included if you add it as the survivor’s own income.
Affects: Couples where one spouse is likely to outlive the other
Minor
A death takes effect at the next step rather than on the exact date
Affects: Everyone, slightly
| Not modeled | Who it affects | Effect |
|---|
| Marriage or divorce changing filing status partway through a plan | Those expecting either | Depends |
| Qualifying surviving spouse status (joint brackets for two years with a dependent child) | A widow or widower with a dependent child | Conservative |
| Survivor benefits aren’t added automatically. When a spouse dies, their salary, pension and Social Security stop; a survivor pension or survivor benefit is only included if you add it as the survivor’s own income. | Couples where one spouse is likely to outlive the other | Conservative |
| A death takes effect at the next step rather than on the exact date | Everyone, slightly | Minor |
State taxes
Depends
Moving to another state partway through a plan. One state applies for the whole simulation.
Affects: People who expect to relocate, especially between high- and no-tax states
Conservative
State exclusions for pension and IRA income (separate from Social Security)
Affects: Retirees in the many states that offer them
Conservative
State credits, including Utah’s Social Security credit and personal-exemption credits in CA, OR, UT, AR, DE, IA and NE
Affects: Residents of those states
Conservative
Head-of-household and married-filing-separately state schedules (single schedules used instead)
Affects: Heads of household
Depends
Some states’ own joint brackets. For 26 of the 42 states with an income tax, a couple’s brackets are the single ones doubled (13 of those are flat-rate, where it makes no difference).
Affects: Couples in states that don’t double
Optimistic
Phase-outs of Minnesota’s standard deduction and Maine’s and Ohio’s exemptions
Affects: Higher earners in those states
Optimistic
States that don’t index their brackets are indexed anyway
Affects: Residents of those states, over long simulations
Conservative
Vermont’s legislated path to fully exempting Social Security by 2032
Affects: Vermont retirees
| Not modeled | Who it affects | Effect |
|---|
| Moving to another state partway through a plan. One state applies for the whole simulation. | People who expect to relocate, especially between high- and no-tax states | Depends |
| State exclusions for pension and IRA income (separate from Social Security) | Retirees in the many states that offer them | Conservative |
| State credits, including Utah’s Social Security credit and personal-exemption credits in CA, OR, UT, AR, DE, IA and NE | Residents of those states | Conservative |
| Head-of-household and married-filing-separately state schedules (single schedules used instead) | Heads of household | Conservative |
| Some states’ own joint brackets. For 26 of the 42 states with an income tax, a couple’s brackets are the single ones doubled (13 of those are flat-rate, where it makes no difference). | Couples in states that don’t double | Depends |
| Phase-outs of Minnesota’s standard deduction and Maine’s and Ohio’s exemptions | Higher earners in those states | Optimistic |
| States that don’t index their brackets are indexed anyway | Residents of those states, over long simulations | Optimistic |
| Vermont’s legislated path to fully exempting Social Security by 2032 | Vermont retirees | Conservative |
Mechanics
| Not modeled | Who it affects | Effect |
|---|
| The last year of a simulation isn’t settled at year end | Everyone, in the final year only | Optimisticslightly |