An Explanation of the Above Columns

End of Tax Year illustrates values as of December 31 of each year.

Age is the customer's age on December 31 of the tax year.

Non-Deductible Contribution is the amount the customer deposits into his/her Roth IRA, in this case, $2,000 per year.  Deposits are made on April 15 in the tax year indicated.  Interest is computed daily (see IRA Value below).

Side Fund Withdrawal. The Side Fund is a purely hypothetical way of showing the compound interest effect, or opportunity cost, of the income tax differences between an Ordinary IRA vs a Roth IRA. Your customer must pay taxes to convert their Ordinary IRA to a Roth IRA. This money must come from somewhere. Most people will increase the withholding from their paycheck and pay the taxes out of their income. Some will take the money from savings, and still others will borrow the money. It doesn’t matter. Conceptually, your customer will lose the interest they could have earned on the money they used to pay these taxes. In the example above, $7,000 per year is deducted from the Side Fund on the April 15th following the year when the income tax liability is incurred. Since Congress allows the taxes on conversions made in 1998 to be spread over four years, $7,000 is deduced on April 15, 1999,   April 15, 2000,  April 15, 2001,  and April 15, 2002. The $7,000 is based on  a 100,000 conversion in a 28% tax bracket.

Income From IRA starts on the Date Income Begins - Roth IRA input field.  A monthly withdrawal amount is calculated that will deplete the fund on the December 31st the customer turns age 90.  The amount shown in this column above, $79,160, is based on a deduction of $6,596.67 deducted from the fund on the first day of each month beginning with January 1, 2017.

Income Taxes should always be zero for the Roth IRA because the software does not allow distributions prior to five years or before age 59½.

Side Fund Reduction is the income the customer could have had if the money were left in the Side Fund instead of converting to a Roth IRA. See Side Fund Withdrawal above.

After-Tax Income To-Date. This number is calculated from the columns Income From IRA, minus Income Taxes, less Side Fund Reduction. Thus, at age 70 in the example above,  79,160 - 0 - 7,829 = 71,330.  This calculation continues year after year and shows the total after-tax income withdrawn to date.

IRA Value is the value on December 31st of the tax year.   Interest is compounded daily.  Check the first year's numbers with your HP 12-C Calculator:

Step 1: Calculate the Interest on the Lump Sum:
n = 1                  (calculate interest for one year)
i = 10                 (10% interest, based on user input, 10% Roth IRA Illustrated Annual Return)
PV = -100,000 (User input, Value of Your Ordinary IRA)
PMT =  0         (not applicable)
Press the FV key to calculate the result, 110,000..

Step 2: Calculate the interest on the $2,000 contribution that was added on April 15th:
i = 0.02612  (1.1 ^ (1 / 365), the daily interest factor for 10% interest. To arrive at this number on your calculator, follow these steps: 1.1 Enter, 1 Enter, 365 Divide, y to the power of x, 1 subtract, 100 times.)
n = 261         (Number of days from April 15th to December 31st)
PV = 2,000   (User input, Annual IRA Contribution)
PMT = 0       (not applicable)
Press the FV key to calculate the result, 2,141.06. Add this to 110,000 to get 112,141 which is the IRA Value in the first year.

Side Fund Value is the value on December 31st of the tax year.

• Interest is compounded daily.  The Side Fund Value is the impact of compound interest has on Side Fund Withdrawals and Side Fund Reductions as explained above.
• The Side Fund is assumed to be a taxable vehicle so a "net" interest rate is used.  For the example above, 10% interest less a 28% tax bracket is a 7.2% "net" interest rate.

Check the second year's numbers with your HP 12-C Calculator:

Calculate the interest on the $7,000 Side Fund Withdrawal that took place on April 15, 1999:
i = 0.01905  (1.072 ^ (1 / 365), the daily interest factor for 7.2% interest. To arrive at this number on your calculator, follow these steps: 1.072 Enter, 1 Enter, 365 Divide, y to the power of x, 1 subtract, 100 times.)
n = 261         (Number of days from April 15th to December 31st)
PV = 7,000   (User input, Annual IRA Contribution)
PMT = 0       (not applicable)
Press the FV key to calculate the result, 7,356.81, which is the Side Value in the second year.

Total Value is the sum of the IRA Value and the Side Fund Value.   The Side Fund will show a negative balance when a conversion from an Ordinary IRA to a Roth IRA is illustrated.