Proper setup is to have your jounce stops make make full contact with your axle bump pads at full compression. Any adjustment beyond that is just for "looks" at ride height. You just want to make sure that a good amount of contact is still being made and without any interference. Typically, about 1/4" is all you need at 3"-4" of lift.
@wayoflife Would this apply to a 5" lift also?
At 5" of lift, you REALLY REALLY should be running long arms.
@wayoflife I have long arms.
LOL - awesome! Yes, remove the coils, raise your axle to full bump and set your lower control arms so that the jounce stops make full contact with the bump pads. From there, you can set your upper arms to the caster you prefer to run and pinion angle that you need in the rear.
I have a question about adjusting the lower control arms to center the axle. Do I want the jounce stops to make contact with the lift kit bump stop extensions installed or removed and to make contact with the axle pad?
It doesn't really matter as there won't be enough of a difference with or without them in but typically, you would set your axle with the extensions in. That way you'll know that they are making good contact at a full bump.