Multiple Retirement Accounts and Annuities
ESPlanner would be more flexible if it could handle multiple retirement accounts. It is common today to have several 401k plans and Rollover IRAs, perhaps a deductible and a non-deductible IRA, and a Roth (not counting SEP and Keogh and 403b plans). Since the rules are quite different (some 401k distributions can be taken at 55 with no penalty, most IRAs require 59.5 for no penalty, and most of Roth value can be extracted with no penalty at any age), it is too limiting to assume that you only start one annuity and only at one age.
Furthermore, were they separated, it would be easier to plan taxable versus Roth distributions
RSS
We have to walk a fine line between covering all possible contingencies and covering most of them. Usually the difference is subjective and concerned with ease of use. Basically we would have to be able to let the user tweak all the knobs and dials of each type of plan which would make the data entry even more difficult.
We hear your argument (and personally I agree with much of it) but we're not sure how much coverage we can provide while keeping the program more or less approachable by folk who aren't tax professionals.
Best,
Dick Munroe
I understand the concern about ease of use and broadness of appeal that you raise but I reach the opposite conclusion. The current limitation increases effort and confusion IMHO.
(listed from least important to most important)
a. I think people would find it easier to enter values from their various account statements rather than tracking total values outside of the program and then having to re-create that value each time they want to update with current information. Too much room for human error.
b. The entry for "Employer accounts" is totally unclear. I fear people will simply enter total account values (easy) rather than trying to sum the employer contributions from different accounts (hard) and subtracting that from the sum of all accounts (more human error). [Or is that even what what this entry is for? I can't tell. Guide says "Retirement account contributions are of three typesâ€â€Âemployee contributions, employer contributions, and Roth IRA". How can the program even handle these differently - the distinction is valid only for current and future ocntributions, not past ones.] So this increases confusion by requiring additional data when one entry tof "Total" would have been adequate.
c. The current arrangement for the one annuity from "retirement accounts" already creates a lot of confusion for anyone trying to decide how much to annuitize. This is because it treats distributions to purchase the annuity completely differently from subsequent annual or RMD distributions. Per an email from Dr. Kotlikoff on March 13, 2008, "the single annuity takes funds pro-rata from the various Roth, SEP, IRA, IRA Rollover, and 401k plans". However, "other withdrawals and RMDs it takes out in order you specify". Now that is confusing!
d. IRAs, 401ks, etc. are subject to RMD rules that force you to take money out and pay taxes whether you want the money or not. But you are never required to take any money out of a Roth. Hence the single-annuity limitation forces you to do the very thing that most people will not do, which is take money from their Roth when it is not advantageous to do so.
These extra efforts and errors would be reduced if we could enter assets from the data on the statements and if we could separately annuitize the accounts. But at a very bare minimum, the Roth accounts should be treated independently for annuity and withdrawal purposes, so that
a) creating a 401k/IRA annuity does not force you to (partially or totally) annuitize a Roth, and
b) for subsequent withdrawals, you do not have to deplete an IRA to access a Roth, or deplete a Roth to access an IRA.
I agree that it would be extremely helpful to be able to list more than one annuity. In my own case, I will begin to receive income from a Farm Trust that my recently deceased mother set up for her children. I have entered that in as a fully taxable annuity which will have estimated 2% growth, but with zero ability to be inherited by my domestic partner. This however, leaves no room for any other annuity.