Self Attempt 02

Roth Conversion RMD Analysis Skill

Task Overview

Given a client profile with conflicting data sources, produce a JSON analysis recommending whether to execute a staged Roth conversion, defer, or take no conversion action. The analysis must resolve source conflicts, project RMD taxes, and estimate legacy balances.

Input Structure

Each task contains:

• prompt.txt — generic instruction to read request_memo.md and produce deliverable
• payloads/request_memo.md — client profile, conflicting sources, goals, and specific questions
• payloads/answer_template.json — exact schema and enum values for the output

Source Resolution Rules

The output requires source_resolution with two fields:

• controlling_profile_source: authoritative source for demographic/legal data (DOB, salary, heir info, tax profile)
• controlling_account_source: authoritative source for account balances

Hierarchy

• SIGNED_PROFILE — highest authority for client-verified personal data (DOB, salary, filing status)
• CUSTODIAN_EXPORT — highest authority for actual account balances, unless the signed profile is explicitly more recent and client-acknowledged
• ATTORNEY_MEMO — highest authority for legal/heir matters and estate-specific guidance; overrides SIGNED_PROFILE on heir tax profiles
• CRM_NOTE — lowest authority; use only when no higher source exists for the datum
• STALE_MARKETING_INTAKE — never prefer over the above

Principle

Prefer the source that is most recent, most specific to the data type, and client-verified.

RMD Age Determination (SECURE 2.0)

Use the IRS SECURE 2.0 schedule unless the memo explicitly overrides it:

• Born before 1951 → RMD age 72
• Born 1951–1959 → RMD age 73
• Born 1960 or later → RMD age 75

Pitfall: If the request_memo explicitly states an RMD start year or says "RMDs already started," trust that statement even if it conflicts with the DOB-based calculation. The memo is ground truth for the client's specific situation.

Recommendation Logic

Suitability Assessment

1. Current marginal rate < expected heir marginal rate → generally SUITABLE
2. Current marginal rate ≈ expected heir marginal rate → BORDERLINE
3. Current marginal rate > expected heir marginal rate → DEFER
4. RMDs already started and current rate ≥ heir rate → strongly DEFER
5. RMD within ~5 years and balance is very large → may downgrade from SUITABLE to BORDERLINE

Primary Action Mapping

• SUITABLE → STAGED_ROTH_CONVERSION
• BORDERLINE → STAGED_ROTH_CONVERSION (with conservative plan) or DEFER
• DEFER → DEFER (or NO_CONVERSION if permanently unsuitable)

Risk Flags

• TAX_BRACKET_MANAGEMENT — conversion requires staying within or managing tax brackets (most common)
• LIQUIDITY_CONSTRAINT — client may lack outside funds to pay conversion taxes
• RMD_NEAR_TERM — RMDs starting within ~5 years, reducing conversion runway

Conversion Plan Design

If SUITABLE / BORDERLINE

1. Determine first_conversion_year: typically the current year or next calendar year.
2. Determine conversion_years: typically from current age to RMD age, or a fixed horizon (e.g., 5–15 years). If already in RMDs, use a shorter window (e.g., 3–5 years) or set to 0 if deferring.
3. Determine total_converted:
   • Common approach: convert enough to fill the current tax bracket without jumping brackets, or convert a set fraction of the balance over the conversion window.
   • For large balances with short runways, be conservative (e.g., 20–40% of balance).
4. annual_conversion_amount = total_converted / conversion_years (rounded to cents).
5. total_conversion_tax = total_converted × current_marginal_tax_rate (rounded to cents).
   • If conversions would span multiple brackets, use a blended rate or bracket-by-bracket calculation. A simplified flat-rate estimate is acceptable when bracket boundaries are unknown.

If DEFER / NO_CONVERSION

• first_conversion_year: set to current year or next year
• conversion_years: 0
• conversion_years_positive: 0
• annual_conversion_amount: 0.00
• total_converted: 0.00
• total_conversion_tax: 0.00

RMD Tax Projections

Assumptions (use unless memo states otherwise)

• Annual growth rate: 6% or 7% (use 6% as a conservative standard)
• Horizon: age 85 or 90, or a consistent fixed year (e.g., 20 years from now). Document the chosen horizon.
• RMD calculation: IRS Uniform Lifetime Table (divide prior year-end balance by distribution period)
• Tax on RMDs: RMD amount × current marginal tax rate (simplified; can refine if bracket changes are expected)

Baseline vs Conversion

• baseline_rmd_tax_through_horizon: project RMDs and taxes on the full traditional balance.
• conversion_rmd_tax_through_horizon: project RMDs and taxes on the balance after subtracting total_converted.
• rmd_tax_savings_through_horizon = baseline − conversion (must be non-negative if conversion is suitable).

Important: RMDs are calculated on the prior year-end balance. After each RMD, the remaining balance grows at the assumed rate. Sum taxes year-by-year through the horizon.

Legacy Projections

• projected_roth_balance_horizon: total_converted compounded at the growth rate from first_conversion_year to horizon_year.
• projected_traditional_balance_horizon: initial balance minus total_converted, then reduced by annual RMDs and compounded by growth rate.
• heir_tax_profile:
  • MOSTLY_TAX_FREE — majority of heirs are in lower brackets or charity/spouse rollover
  • MIXED_TAXABLE_AND_TAX_FREE — mixed heir brackets or partial charity
  • MOSTLY_TAXABLE — majority of heirs are in equal or higher brackets

Heir Tax Profile Rules

• Spousal rollover → tax-free (counts toward tax-free)
• Charity bequest → tax-free
• Heir in lower bracket than owner → tax-free perspective
• Heir in equal or higher bracket → taxable perspective
• When multiple heirs with mixed brackets → MIXED_TAXABLE_AND_TAX_FREE unless one side clearly dominates

JSON Output Rules

• All monetary values must be JSON numbers (not strings), rounded to two decimal places.
• All enum values must match the template exactly (uppercase with underscores).
• task_id must match the task directory name (e.g., train_001, test_001).
• client_id should be stable (use the client's name or a slug derived from it).
• analysis_type is always roth_conversion_rmd.
• All top-level keys listed in required_top_level_keys must be present.
• conversion_plan.conversion_years_positive should equal conversion_plan.conversion_years when all years have conversions; set to 0 when deferring.
• Ensure internal consistency: total_converted ≈ annual_conversion_amount × conversion_years (within rounding).

Common Pitfalls

1. Using strings for numbers — the template explicitly forbids this.
2. Ignoring memo-overridden RMD status — trust the memo over general IRS rules.
3. Wrong source resolution — account balances usually come from custodian export, but personal data comes from signed profile; legal/heir data may come from attorney memo.
4. Inconsistent horizon — choose a horizon and apply it consistently across baseline and conversion projections.
5. Forgetting RMDs reduce balance — legacy traditional balance must account for RMD withdrawals.
6. Negative tax savings — if conversion increases projected RMD taxes, reconsider the recommendation.
7. Heir tax profile misclassification — consider the owner's current marginal rate vs heir's expected marginal rate, not just absolute heir brackets.

Calculation Verification Checklist

Before finalizing output, verify:

• first_rmd_year aligns with memo or SECURE 2.0 rules
• horizon_year is reasonable and consistent
• baseline_rmd_tax_through_horizon ≥ conversion_rmd_tax_through_horizon
• rmd_tax_savings_through_horizon = baseline − conversion
• total_converted = annual_conversion_amount × conversion_years (± rounding)
• total_conversion_tax = total_converted × rate (or blended rate)
• projected_traditional_balance_horizon < initial balance (unless very long horizon with high growth)
• projected_roth_balance_horizon > total_converted (due to growth)
• recommendation enums exactly match template values
• source_resolution enums exactly match template values
• task_id matches the directory/task identifier