A reliable prediction of the pseudoelastic behavior necessitates the involvement of martensite reorientation in the model. This is important not only under non-proportional loading but in general when the phase transformation proceeds in a localized manner, which results in complex local deformation paths. In this work, an advanced model of pseudoelasticity is developed within the incremental energy minimization framework. A novel enhancement of the model over its original version lies in the formulation of a suitable rate-independent dissipation potential that incorporates the dissipation due to martensitic phase transformation and also due to martensite reorientation, thus yielding an accurate description of the inelastic transformation strain. The finite-element implementation of the model relies on the augmented Lagrangian treatment of the non-smooth incremental energy problem. Thanks to the micromorphic regularization, the related complexities are efficiently handled at the local level, leading to a robust finite-element model. Numerical studies highlight the predictive capabilities of the model. The characteristic mechanical behavior of NiTi tube under non-proportional tension–torsion and the intricate transformation evolution under pure bending are effectively captured by the model. Additionally, a detailed analysis is carried out to elucidate the important role of martensite reorientation in promoting the striations of the phase transformation front.