Roth Conversion Tax Bracket Target Wonkiness
New user here, so maybe I'm missing something obvious or just don't understand how taxes work in reality, but PL is doing something I didn't expect when I tried enabling Roth conversions with a target tax bracket (24%) as a constraint. Looking at the Tax Analytics page afterwards, it seems that PL is converting to Roth an amount equal to the top of the 24% tax bracket, ignoring the fact that dividends, interest, and more importantly the capital gains from taxable assets sold to pay the taxes on the conversion all also count as income in determining the top tax bracket. There is no indication on that page that any income at all will be taxed higher than 24%, which seems obviously wrong to me.
Summarizing, there seem to be two issues:
- PL is not doing Roth conversions up to a tax bracket limit as is normally practiced, which is to convert all you can given other income is also accounted for when determining your top tax bracket. E.g., for a married couple filing jointly in 2026, the top of the 24% tax bracket is $403,550. If I sell $100K in taxable investments and get $10K in interest and dividends in that year, that would leave just 403,550 - 100,000 - 10,000 = $290,550 available for a Roth conversion to ensure I do not pay any income tax in the next higher bracket. But PL does a Roth conversion for exactly $403,550, forcing me deep into the 32% tax bracket.
- I am not sure, but it seems like PL is undercounting the taxes on the Roth conversions, assuming I actually stay in the 24% bracket. That's what the Tax Analytics page shows, anyway, but I suppose it's possible that it's actually correct behind the scenes and that the calculated taxes are correct.
Are these known issues? I can sort of work around #1 by doing the math myself (not my preference!), but if #2 really is a problem, then the Plan ends up being rather unrealistic, so I cannot trust the results.