Reflect 3 Attempt 03

Roth Conversion and RMD Analysis Skill

Task Overview

Analyze a client's retirement accounts to determine whether a systematic Roth conversion is advisable, calculate the optimal conversion plan, project RMD tax impacts, and resolve authoritative data sources. Output must follow a strict JSON template with exact numeric precision.

Categorical Decision Rules (Critical — Wrong Values = Zero Score)

Recommendation Block

• primary_action:
  • STAGED_ROTH_CONVERSION when the client can convert without liquidity issues and bracket constraints can be managed.
  • DEFER when conversion is theoretically beneficial but constrained by age, bracket, or timing.
  • NO_CONVERSION when liquidity concerns explicitly prevent conversion or the client is well past the conversion window with no viable path.
• suitability:
  • SUITABLE for straightforward conversion cases (no liquidity issues, bracket accommodates meaningful conversion, client preference aligns).
  • BORDERLINE for constrained cases (small conversion due to low bracket headroom, near-term RMDs, or high existing bracket).
  • DEFER when the analysis suggests waiting for better tax circumstances.
• risk_flag:
  • TAX_BRACKET_MANAGEMENT when the $200k systematic amount would push the client into a higher marginal bracket (most common).
  • LIQUIDITY_CONSTRAINT when the taxable account must be drawn for living expenses and cannot cover conversion taxes.
  • RMD_NEAR_TERM when RMDs start within ~2–3 years and conversion window is extremely short.

Legacy Projection

• heir_tax_profile: Compare projected Roth vs Traditional balance at horizon.
  • MOSTLY_TAX_FREE when Roth balance > 1.5× Traditional balance.
  • MOSTLY_TAXABLE when Traditional balance > 1.5× Roth balance.
  • MIXED_TAXABLE_AND_TAX_FREE otherwise.
  • If no Roth exists and no conversion occurs, this is MOSTLY_TAXABLE.

Source Resolution

• controlling_profile_source: SIGNED_PROFILE is the default authoritative source for tax profile data (filing status, marginal rate) unless it is materially stale and superseded by a more recent CRM note. In cases of conflict or significant age gap, the most recent documented source with tax profile data controls.
• controlling_account_source: Always CUSTODIAN_EXPORT — it holds the actual account balances and is the most recent account-level source in every task.

Numeric Calculation Rules

Conversion Plan

1. first_conversion_year: Always the analysis year (2026 in the training tasks).
2. conversion_window: Convert "until age 70 or first RMD year, whichever comes first."
   • Count years from first_conversion_year up to (but not including) the earlier of: (a) the year the client turns 70, or (b) first_rmd_year.
   • For clients already past age 70, use first_rmd_year as the limit.
   • For clients already past first RMD year, conversion_years = 0.
3. conversion_years_positive: Equals conversion_years when all years have positive conversions. If the traditional IRA depletes mid-window, count only full years (partial final years may still count as positive if any amount converts).
4. annual_conversion_amount: Default is $200,000. Reduce if $200k + client income (after standard deduction) would exceed the top of the current marginal bracket.
   • Use the standard deduction for the client's filing status when computing taxable income room.
   • Use 2025 tax brackets as the reference (the data spans 2025–2026, and 2026 brackets are not finalized in the task context).
   • For married filing jointly: 22% tops at $206,700; 24% tops at $394,600; 32% tops at $501,050.
   • For single: 22% tops at $103,350; 24% tops at $197,300; 32% tops at $250,500.
   • Standard deduction 2025: MFJ $29,900; Single $14,950.
5. total_converted: Sum of actual annual conversions over the conversion window, accounting for 6% annual growth of the remaining traditional balance between conversions.
6. total_conversion_tax: total_converted × client's marginal tax rate.

RMD Projection

1. horizon_year: The year the client reaches age 85. Compute as birth_year + 85.
2. first_rmd_year: Determined by SECURE 2.0 rules:
   • Born before 1951: RMD at age 72.
   • Born 1951–1959: RMD at age 73.
   • Born 1960 or later: RMD at age 75.
3. baseline_rmd_tax_through_horizon:
   • Critical: Include the pre-RMD growth phase. The traditional IRA balance grows at 6% annually for ALL years from the analysis year up to (but not including) first_rmd_year.
   • Once RMDs begin, each year: RMD = current_balance / Uniform Lifetime Table factor; subtract RMD; apply 6% growth to remainder; accumulate tax at marginal_rate.
   • Use the post-2022 Uniform Lifetime Table (SECURE 2.0 updated table):
     • Age 73: 26.5, 74: 25.5, 75: 24.6, 76: 23.7, 77: 22.9, 78: 22.0, 79: 21.1, 80: 20.2, 81: 19.4, 82: 18.5, 83: 17.7, 84: 16.8, 85: 16.0.
4. conversion_rmd_tax_through_horizon: Same RMD methodology, but starting from the reduced traditional balance after conversions. For clients with no conversion, this equals baseline.
5. rmd_tax_savings_through_horizon: baseline_rmd_tax − conversion_rmd_tax. Can be small or even negative if conversion tax outweighs RMD savings, but usually positive for meaningful conversions.

Legacy Projection

1. projected_roth_balance_horizon: Current Roth balance grown at 6% annually through horizon, PLUS all converted amounts (which also grow at 6% from their conversion year onward). Roth assets do not have RMDs for the original owner.
2. projected_traditional_balance_horizon: The remaining traditional balance after all RMDs through horizon, computed under the conversion scenario.
3. Round all dollar amounts to two decimal places (cents) using standard rounding. Use exact arithmetic where possible to avoid floating-point drift.

Common Pitfalls

• Forgetting pre-RMD growth: The baseline traditional balance grows untouched for years before RMDs begin. This is the single largest source of numeric error.
• Wrong conversion window: Do not convert past age 70 or past first RMD year, whichever comes first. Converting up to the first RMD year is the hard stop.
• Ignoring bracket limits: Always check whether $200k pushes the client out of their stated marginal bracket. Apply standard deduction.
• Source resolution errors: Do not default to the newest date for profile source. The signed profile is authoritative unless clearly superseded. Custodian export always controls account balances.
• Heir tax profile threshold: Use the 1.5× rule, not simple majority.
• RMD table: Use the post-2022 table for all RMDs; do not revert to pre-2022 factors.

Output Template Checklist

Ensure the JSON contains exactly these top-level keys:

• task_id, client_id, analysis_type
• recommendation with primary_action, suitability, risk_flag
• conversion_plan with first_conversion_year, conversion_years, conversion_years_positive, annual_conversion_amount, total_converted, total_conversion_tax
• rmd_projection with horizon_year, first_rmd_year, baseline_rmd_tax_through_horizon, conversion_rmd_tax_through_horizon, rmd_tax_savings_through_horizon
• legacy_projection with projected_roth_balance_horizon, projected_traditional_balance_horizon, heir_tax_profile
• source_resolution with controlling_profile_source, controlling_account_source

All numbers must be JSON numbers (not strings). No ordering constraints on object keys.