Project notes

Modified Adjusted Gross Income takes your AGI and adds back certain items. There is no single MAGI: the ACA premium tax credit, Medicare IRMAA, and the Net Investment Income Tax each define it differently, so a dollar of income can affect each one differently.

How we model it & limits: The tool computes three separate MAGI figures — one per rule (PTC, IRMAA, NIIT) — with the add-backs each statute requires, and shows them side by side. They are derived from the income and accounts you enter; verify against your own return before relying on them.

On the ACA marketplace, premium tax credits shrink as income rises. Keeping MAGI under the binding threshold can preserve thousands of dollars of subsidy — the central planning lever for the pre-Medicare (ages 50–64) household this tool is built for.

How we model it & limits: The tool computes the PTC-basis MAGI and can hold discretionary draws and Roth conversions under a ceiling you set. It does not look up your exact second-lowest-cost silver plan or local benchmark premiums — it treats the cliff as a MAGI ceiling you choose based on your own marketplace situation. Enhanced-subsidy rules are in flux; see the disclaimer.

The Income-Related Monthly Adjustment Amount is a surcharge on Medicare Part B and Part D premiums for higher-income enrollees. It is a hard cliff: crossing a tier by a single dollar raises the surcharge for the whole year, per enrollee.

For the ACA-bridge retiree, IRMAA replaces the ACA subsidy cliff as the binding constraint once Medicare starts at 65 — which is why the tool tracks it as a distinct ceiling.

How we model it & limits: We classify the IRMAA tier from the IRMAA-basis MAGI and add the per-enrollee annual surcharge. In the multi-year projection the tier thresholds are inflation-indexed, but the surcharge dollar amounts are held flat (they track medical costs, not CPI), so later-year surcharges may be understated.

The Net Investment Income Tax is a 3.8% tax on the smaller of your net investment income (interest, dividends, capital gains, etc.) or the amount your MAGI exceeds the threshold — $200,000 single, $250,000 married filing jointly.

How we model it & limits: The tool applies the 3.8% surtax using the NIIT-basis MAGI and your realized investment income. These thresholds are not inflation-indexed in law, so the projection holds them flat — correct, but it means more households drift over the line in later years.

Which typeof account you draw from each year — taxable, tax-deferred, or Roth — changes your taxable income, and therefore subsidies, IRMAA, and lifetime tax. The tool offers selectable strategies (taxable-first, traditional-first, Roth-first, and a cliff-aware “tax-smart” order).

How we model it & limits: The tax-smart order fills Traditional up to your MAGI ceiling, then draws taxable → Roth. Required minimum distributions and any forced 72(t) SEPP payments are always taken first. This concerns account type, not specific securities, funds, or allocations — the tool models whatever holdings you enter and recommends none.

In the low-income years between retiring and starting Social Security or RMDs, converting Traditional balances to Roth can fill up cheap tax brackets and shrink future required distributions. The tool models a “runway” that converts up to a MAGI ceiling each year.

How we model it & limits: The ceiling is cliff-aware — it can stay under the ACA threshold before 65 and an IRMAA tier at 65+. Conversions default to the largest Traditional IRA, with the conversion tax funded from the portfolio; 401(k)/403(b)/457(b) balances are not auto-converted. This is a comparison of scenarios you choose, not a recommendation to convert.

A rollover moves a balance between accounts of the same tax treatment — pre-tax to pre-tax (a 401(k) to a Traditional IRA) or Roth to Roth (a Roth 401(k) to a Roth IRA). Unlike a Roth conversion, it has no tax consequence; it just changes where the money lives. (Moving pre-tax money into a Roth is a conversion, and is taxable.)

Where the money lives matters later: rolling an employer 401(k) into an IRA forfeits the Rule of 55 (penalty-free access after separating at 55+), but makes the balance reachable by a 72(t) SEPP and usable as a Roth-conversion source.

How we model it & limits: The tool applies a scheduled rollover at the start of its year and carries those downstream effects automatically. A Roth 401(k) → Roth IRA rollover moves the balance only — it does not split it into contribution/earnings layers, and the destination Roth’s existing 5-year clock governs.

A 72(t) SEPP lets you take penalty-free distributions from a Traditional IRA before 59½, provided the payments are “substantially equal” (computed by an IRS-approved method) and continued for the later of five years or until you reach 59½.

How we model it & limits: The tool models the RMD-single-life method (recomputed yearly) and the amortization method (a fixed payment), forces the payment each year, and shields it from the 10% penalty. It assumes a cleanly maintainedSEPP: it does not model the retroactive penalty from “busting” a SEPP by taking the wrong amount, nor the annuitization method or employer-plan SEPPs. Treat the output as illustrative.

Required Minimum Distributions are the amounts the IRS requires you to withdraw from pre-tax accounts each year once you reach your RMD age — 73 for those born 1951–1959, 75 for those born 1960 or later (SECURE 2.0). They are taxable and unavoidable.

How we model it & limits: The tool computes RMDs with the Uniform Lifetime Table and forces them first each year. It does not apply the Joint Life table for a spouse more than 10 years younger (which would lower the RMD), and it does not model the inherited-IRA 10-year rule in the projection.

Guyton-Klinger “guardrails” adjust spending dynamically. While the withdrawal rate stays within bands around its starting rate, spending just tracks inflation. Breach the upper band (the portfolio fell) and spending is cut; breach the lower band (it grew) and spending rises.

How we model it & limits: The tool uses ±20% guardrail bands with ±10% spending adjustments. Outcomes depend heavily on the single deterministic return and inflation rate you enter — there is no Monte Carlo here, so the guardrail path shows one scenario, not a probability. Stress tests replay fixed historical sequences to illustrate downside, but are not a substitute for a distribution of outcomes.

The funded ratio compares what you have to what you need, in today’s dollars. The tool reports it for three tiers — essentials, lifestyle, and legacy — so you can see which goals are covered. Above 1.0 means the present value of assets covers that tier.

How we model it & limits: Present values use the real (inflation-adjusted) discount rate implied by your return and inflation assumptions. The ratio is only as good as those assumptions and your stated longevity age; it is a planning snapshot, not a guarantee.