Selling from a taxable account isn't a tax-free event, so the projection charges tax through two explicit channels, both with inputs you can see and set.
- Sale gains. Each dollar withdrawn from taxable is assumed to carry your embedded-gain percentage, the share of a sale that is gain rather than basis. That gain is added to the year's ordinary income and taxed at your bracket. (Your Profile's assumed long- and short-term capital-gains rates are not used here. They feed the Rebalancing page's trade tax estimate only.)
- Annual yield. The taxable balance throws off dividends and interest every year (the income yield % input). It's taxed as ordinary income and counts toward MAGI, so it eats into conversion and ACA-cliff headroom even when you sell nothing. Set it to match what the account holds: ~100% of return for a T-bill fund, a couple of percent for a growth fund.
Honest limits
- Gains are taxed as ordinary income, with no preferential LTCG rate (see tax scope), which overstates tax for long-held lots.
- The embedded-gain share is static: gains created during the plan by rebalancing or glide-path de-risking are not added on top. If your plan leans hard on reshuffling a large taxable account, real drag will be somewhat higher than modeled.
Rule of thumb: the yield channel is about headroom (MAGI, cliffs), the sale channel is about cost per withdrawal. When a conversion plan looks too good, check whether the taxable yield input matches the account.