The Income section of the Profile is where the household's primary income sources are entered. This includes client salaries and social security benefits, as well as other income streams such as self-employment income, pension income, and more.
There will be a number of income cards pre-populated within this section when you create a new client plan. There will be a Salary card present for each client, as well as a Social Security card:
For clients with W2 income, you can utilize the pre-populated Salary cards for one or both clients. Click on this card to open a data entry drawer on the right side of your screen, allowing you to input the salary information:
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The Income name will default to [Client's] Salary, but you can enter a custom name if you'd like. In joint plans, you will also want to choose either the client or the co-client as the Owner.
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Enter the Annual amount of the client's salary. This should be the client's current gross salary, as taxes will be applied automatically within the plan projections.
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Specify the duration of the salary using the Income starts and Income ends fields. By default, these will be set to 'Already started' and '[Client's] retirement' respectively.
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Determine the Annual increase on the salary. This is typically utilized to reflect the average or expected cost of living adjustment each year.
What does "Exclude from SS Tax" do?
If a client is working a job that does not pay into Social Security, you can check the 'Exclude from SS tax' box to indicate that the salary is not subject to SS tax. Once selected, the salary income will only be subject to Medicare tax.
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Salary cards will be taxed as W2 income within client plans, which can be found on Line 1 of the 1040. Sample tax forms can be viewed in the Tax > Tax Estimate > Details tab:
Salary income can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Income Inflows column:
For clients without W2 income, these cards can be removed. Hover your mouse over the card, click the 'x' icon that appears in the upper right, and then click Delete. If you remove a salary card and need to add it back at any time, you can do so by clicking Add Income > Salary.
The other pre-populated entry within the Income section is the Social Security card. This card can be used to reflect both current and future social security retirement benefits. Click on this card to open a data entry drawer on the right side of your screen:
If the client is already receiving Social Security retirement benefits, check the Already Receiving box in the upper right of the card. You can then enter the Monthly amount that they are receiving, as well as the initial Filing age.
If the client has not begun receiving benefits, leave the 'Already receiving' box unchecked. The Filing age and Filing month will determine when retirement benefits will begin within the projections. The Estimated benefit amount determines how future benefits will be calculated:
Use Simple Estimate - Benefits are estimated using the annual amount and projected annual increase entered into that client’s Salary or Self-employment income card.
Based on SS Statement Value - You will be asked to enter the monthly benefit amount and corresponding start age from the client's Social Security statement.
Based on Historical Covered Earning - You will be asked to enter the client's annual covered earnings history.
No Social Security - RightCapital will not calculate a retirement benefit for the client. We will also exclude any spousal or survivor benefits for that individual.
Learn more about entering Social Security benefits
For a more detailed walkthrough of the data entry process for Social Security, please feel free to reference the article below:
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Social Security income is typically taxed to some extent for most individuals. The exact amount is dependent on a number of variables, such as a household's combined income and state of residence. To read more about when social security is taxable in RightCapital, click here.
Social Security income can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Income Inflows column:
Although Social Security cards cannot be deleted like other income cards, you can turn Social Security benefits off for a given individual by opening their SSA card, and choosing the 'No Social Security' option within the Estimated Benefit Amount dropdown:
To add additional sources of income to a client plan, click the blue 'Add Income' button in the upper right. This will allow you to choose from a long list of income options:
Below you will find a brief overview of each income card, followed by additional information on data entry, taxation, and cash flow location. Remember that if you ever have any questions while entering client data, you can always reach out to the RightCapital Support Team for assistance!
Don't see an Add Income button?
If you are using a 'Goal Based' planning method, income and expenses do not need to be specified and the Add Income button will be removed. To learn more about the planning method setting and its impact on your client plans, feel free to reference the article below:
For clients who are self-employed, you can choose to add a Self-employment card in place of (or in addition to) a Salary card. This card is commonly used to reflect 1099 income. To add this card, click Add Income > Self-Employment:
Enter the Annual amount of the client's self-employment income. This figure should be entered net of any deductible business expenses. Taxes will be applied automatically.
Specify the duration of the self-employment income using the Income starts and Income ends fields. By default, these will be set to 'Already started' and '[Client's] retirement' respectively.
Determine the Annual increase. The income stream will increase by this percentage each year.
If the client's business qualifies as a specified service trade or business (SSTB), check the Service Income box. This will ensure the income is subject to the phase-out of the QBI deduction under TCJA.
Self-employment income will be treated as Schedule C income within client plans. If the 'Service Income' box is checked, this income will also be subject to the phase-out of the QBI deduction.
Although RightCapital does not include a schedule C, Self-employment income can be found on Line 3 of the Schedule 1, which will then feed into Line 8 of the 1040 as Other Income. Sample tax forms can be viewed in the Tax > Tax Estimate > Details tab:
Self-Employment income can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Income Inflows column:
Pension income cards are one of two ways to enter pensions into RightCapital. These cards can be used to model both current and future pension income streams. To add this card, click Add Income > Pension:
When to use Pension Income Cards
Pension income cards are typically used to reflect Defined Benefit Plans that result in fixed income streams, such as teacher's pensions and government pensions.
Pension plans that are more similar to Defined Contribution Plans (personal pensions, alternative retirement plans for teachers, etc.) can be added as Investments in the Profile > Net Worth area.
Annual amount - The dollar amount that the client will receive each year from the pension.
Income starts - The start year is the first year the income is included in the plan. For clients who are already receiving their pension income, select the 'Already started' option.
Type - indicates the period for which the pension income will last:
Certain only - reflects payment for a specific duration. If selecting 'Certain only', input the year that income should end in the Guaranteed Period field.
Life only - reflects payment for the life of the owner. If selecting 'Life only', input the percentage of income that the surviving client will receive upon the death of the owner in the Survivor % field.
Certain/Life - reflects payments for the longer of either the client's life or the period indicated. If selecting 'Certain/Life', input the year for the Guaranteed Period to the right, as well as the Survivor % at the bottom of the card.
Annual increase - indicates whether and by how much the pension income will increase each year. You can specify whether this is a simple or compounding increase in the Increase type field.
Simple - increase is calculated based on the original annual income amount, and will be identical each year going forward.
Compound - increase is calculated based on the original annual income amount, plus accumulated interest of previous periods.
Cost Basis - optional parameter for non-qualified pensions, representing the total amount paid into the pension by the client. If the pension is qualified, leave this field at $0.
Exclusion Ratio - optional parameter for non-qualified pensions, representing the percentage of the pension income that is not taxable until the cost basis is depleted. If the pension is qualified, leave this field at 0%.
Non-Covered - for pensions paid by an employer that does not withhold Social Security taxes, the 'Non-covered' box can be checked. In applicable cases, Social Security benefits may be reduced as a result of WEP or GPO.
State Tax Exempt - For pensions that are not subject to state tax, you can check the ‘State tax exempt’ box. If the box is left unchecked, pension income will be subject to state-specific taxes, based on the client's resident state.
Pension income will be taxed as ordinary income within client plans, and can be found on Line 5 of the 1040. Sample tax forms can be viewed in the Tax > Tax Estimate > Details tab:
For pensions that are not subject to state tax, check the 'State Tax Exempt' box within the pension income card. For pensions that are federally tax free, we recommend using an 'Other Income' card with the 'Taxes' field set to Tax Free.
Pension income can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Income Inflows column:
Annuity income cards are one of two ways to enter annuities into RightCapital. These cards can be used to model both current and future annuity income streams. To add this card, click Add Income > Annuity:
When to use Annuity Income Cards
More often than not, annuities are entered as assets in the Profile > Net Worth section. Annuity income cards should only be used in cases where you want to model the annuity as a fixed income stream, without accounting for its current value (for example, an annuity that has previously been annuitized).
Annual amount - The dollar amount that the client will receive each year from the annuity.
Income starts - The start year is the first year the income is included in the plan. For clients who are already receiving their annuity income, select the 'Already started' option.
Type - indicates the period for which the annuity income will last:
Certain only - reflects payment for a specific duration. If selecting 'Certain only', input the year that income should end in the Guaranteed Period field.
Life only - reflects payment for the life of the owner(s) of the annuity. If selecting 'Life only', input the percentage of income that the surviving client will receive upon the death of the owner in the Survivor % field.
Certain/Life - reflects payments for the longer of either the client's life or the period indicated. If selecting 'Certain/Life', input the year for the Guaranteed Period to the right, as well as the Survivor % at the bottom of the card.
Annual increase - indicates whether, and if so, by how much, the income amount increases each year after beginning. This can reflect a cost of living adjustment (COLA) option or any guaranteed increase. You can specify whether this is a simple increase or a compounding increase in the Increase type field.
Simple - increase is calculated based on the original annual income amount, and will be identical each year going forward.
Compound - increase is calculated based on the original annual income amount, plus accumulated interest of previous periods.
Cost Basis - optional parameter for non-qualified annuities, representing the total amount paid into the annuity by the client. If the annuity is qualified, leave this field at $0.
Exclusion Ratio - optional parameter for non-qualified annuities, representing the percentage of the annuity income that is not taxable until the cost basis is depleted. If the annuity is qualified, leave this field at 0%.
Annuity income will be taxed as ordinary income within client plans, and can be found on Line 5 of the 1040. Sample tax forms can be viewed in the Tax > Tax Estimate > Details tab:
Annuity income can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Income Inflows column:
Income Distribution cards can be leveraged to withdraw money from a specific account bucket, and distribute it as income within a client plan. To add this card, click Add Income > Distribution:
Learn more about Income Distributions
While primarily used to distribute invested assets as income, Distribution cards can also be used to model things like Roth Conversions, IRA Rollovers, and Net Unrealized Appreciation. To learn more, you can read our dedicated article on Income Distributions via the link below:
Approach - Choose how the distributions will be entered/calculated. Options include:
Fixed dollar amount
% of start year acct. balance
% of annual acct. balance
Deplete over # of years
Owner - Specify which client's assets you'd like to pull from.
From Account - Specify which account bucket you'd like to pull from.
Start year - Select when you'd like the distributions to begin.
End year - Select when you'd like the distributions to end.
Annual increase - Determine the percentage by which the distributions will increase each year.
Type - Choose the type of distribution that will occur. The available options will change depending on the account bucket being pulled from.
The Normal distribution option is always available, and will cause funds to be distributed as a cash inflow within the plan.
To read more about the other distribution types, click here.
Taxation - Determines how the distribution will be taxed within the plan.
The Standard rule means that the distributions will be taxed normally (based on this account type and distribution timing).
Penalty-free means that any early withdrawal penalties will be waived (for example, 72t distributions).
Tax-free will eliminate taxes entirely (for example, charitable distributions from a 401k).
The way income distributions are taxed depends on a number of factors, such as the account bucket being pulled from and the timing of the distributions within the plan. The 'Type' and 'Taxation' options that you select within the distribution card will also be considered.
Distributions can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Planned Distribution column:
Bonus income cards can be used to reflect expected annual bonuses, either as a dollar amount or as a percentage of the client's income.
For salaried individuals (Self-employed box unchecked), bonus income will be taxed as W2 income (Line 1 of the 1040). If the client is working a job that does not pay into Social Security, you can check the 'Exclude from SS tax' box to indicate that the salary is not subject to SS tax.
For self-employed individuals (Self-employed box checked), bonus income will be taxed as Schedule C income (Line 3 of the Schedule 1, Line 8 of the 1040). If the 'Service Income' box is checked, this income will also be subject to the phase-out of the QBI deduction.
Bonuses can be tracked alongside a client's salary or self-employment income, within the Retirement > Cash Flows > Summary > Income Inflows column.
Child Support
Allows you to model child support payments that a client is receiving now or in the future. Child support income is tax-free in RightCapital. Payments can be tracked within the Retirement > Cash Flows > Summary page, by clicking into Income Inflows > Other Income.
Alimony
Allows you to model alimony payments that a client is receiving now or in the future.
For divorces prior to 1/1/2019, income is taxable (Line 2A of the Schedule 1, Line 8 of the 1040).
For divorces on or after 1/1/2019, income is tax-free.
Payments can be tracked within the Retirement > Cash Flows > Summary page, by clicking into Income Inflows > Other Income.
Royalty
Allows you to model royalties that a client is receiving now or in the future. Royalties are taxed as ordinary income (Line 5 of the Schedule 1, Line 8 of the 1040). Payments can be tracked within the Retirement > Cash Flows > Summary page, by clicking into Income Inflows > Other Income.
Inheritance
Reflects a one-time inheritance, tax-free. Inheritance income can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Other Inflows column.
When the Inherited asset is set to 'Cash and Investment', income will first be used to fund cash outflows in that year. The remainder will be saved and reinvested into the client's taxable investments.
When inheriting a 401k or IRA (traditional or Roth), the income will not be used to fund cash outflows and will instead reflect as Planned Savings into the appropriate account bucket.
Reverse Mortgage
Allows you to model tax-free income associated with a future Reverse Mortgage. This data card will allow you to indicate interest rates, fees, closing costs, and which property the reverse mortgage is tied to. The payments will be visible in the Income Inflows > Other Inflows column of the Cash Flows > Summary. A Mortgage balance will also accrue within the Cash Flows > Net Worth table.
New Loan
The New Loan income card can be used to model new loans being taken out in the future. This card will result in a one-time income inflow, followed by a long-term expense as the debt is repaid. You can specify the loan type and dollar amount, as well as the interest rate and loan term. You can also choose a loan to refinance, which will apply a one-time payment to the selected loan. Any excess income will be added to cashflows.
The loan income can be found in the Income Inflows > Other Inflows column of the Cash Flows > Summary.
The debt payments can be found in the Expenses section in the Cash Flows > Summary. Mortgage payments will appear within the Housing (or Rental & Vacation Home) column, while other debt payments will appear in the Debt column.
The loan balance can be found and tracked within the Cash Flows > Net Worth screen. Mortgage balances will appear within the Mortgage column, while other loan balances will appear in the Other Loans column.
Other Income
The 'Other income' option can be used as a catch-all to enter any additional income streams. These cards give you full control over the amount and duration of the income, as well as the tax treatment. All of these options will be reflected in Cash Flows > Summary > Income Inflows > Other Income column, except for 'Tax credit' which only impacts taxes. 'Minister's housing allowance' will only be subject to self-employment tax, Social Security tax & Medicare tax.
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