TCRP is a comprehensive financial planning tool, but there will always be situations that users need to account for that may not be part of the default questions/entries. Fortunately, that does not mean that those situations can't be accounted for. There is quite a bit of flexibility built into the planner if you know how to take advantage of it. The following are 6 situations that TCRP can account for that may not be obvious. You may not need to account for these specific situations, but just learning about them may spark ideas about how to use TCRP more to your advantage with other situations.
• Want To Change The Order Of Funds Used?
TCRP defaults to a specific order of funds used, using proportional amounts of retirement and non-retirement savings together, when savings are needed to pay expenses. It also makes it easy to delay 401k/IRA savings distributions if you would like to use non-retirement savings exclusively before using retirement savings (up to the age when RMD's must start). But what if you wanted to reverse that, and use retirement savings exclusively before non-retirement savings? There isn't a specific entry for that, but you can do it anyway!
- Leave the entry for a Non-Retirement savings balance blank (Expenses page).
This forces retirement savings to be used exclusively for expenses.
- To make Non-Retirement savings available to help pay expenses at some point, enter that balance as a One-Time Event in the year before you would like the savings to be available. The amount can be added to either Cash savings or Invested Savings, with each having different interest/return rates for more flexibility.
Of course, it doesn’t have to be all or nothing – since the planner will always use a proportional amount of available retirement and non-retirement savings, you could also enter a small non-retirement savings balance to start with so that a small proportion of those funds would be used in relation to retirement savings. Then enter the remainder as a One-Time Event in a later year. This would help regulate how much of those savings are used in conjunction with retirement savings (a larger or smaller proportion).
If there will be many years between the current year and when you will add retirement savings as a One-Time Event, and/or you expect significant earnings on those savings, don't forget to include any expected interest/returns with the future balance.
• Have You Been Paying Off Your Mortgage Ahead Of Schedule And Want TCRP To Reflect The Current Payment/Interest Deduction?
TCRP uses an amortization schedule to calculate mortgage principal/interest payments, but if you have made extra payments over the years and now owe much less than a regular payment schedule would show, you can adjust your entries to reflect this. Your total mortgage payment will always be the same throughout a mortgage (with principal payments increasing and interest payments decreasing), but the interest is based on the current balance. The interest paid is important to get an accurate annual Federal tax deduction.
Example: you are 10 years into a 30 year mortgage ($500k @ 3%), started in 2013, and have paid off half the balance. The goal is to keep the original mortgage payment amount ($2,100) and mortgage ending year (2043), but reflect the lower balance and interest deduction. To do this, change the mortgage term to 21 years, the start date to 01/2022, and the balance to $250,000 (1/2 of the original).
This results in a $1,338 monthly payment, with a $7,140 interest deduction for 2023. This interest amount is roughly what it would have been with the original mortgage once your original balance was ½ of the starting balance ($250k).
To get your total payment up to $2,100, enter an itemized expense of $762 as either "General Loan Debt" or "Auto Loan", so that it won’t be inflation adjusted.
The result is that your total monthly payment amount ($1,338 + $762 = $2,100) is the same as your original mortgage payment, the mortgage still ends in 2043, but the interest paid (and tax deduction) reflects your current balance.
If your actual payment amount is different, or you don’t want to hold the $2,100 amount, you can adjust the itemized expense amount. If you enter a year to pay off the mortgage early (before 2043) in the Mortgages section, don’t forget to enter the same year for the added itemized expense (General/Auto Loan) so that expense will end in the same year.
This requires a little bit of trial and error to get the total payment amount and interest to where it should be, but the end result should be reasonably accurate (the interest is likely the most important part). The annual interest being paid can be seen on the Results page.
• Have A Third Property With A Mortgage And Real Estate Taxes?
TCRP has dedicated entries for 2 mortgages/properties, primarily to make it easier to account for the tax deductions for mortgage interest and real estate taxes. But if you have a 3rd property you can still account for it by doing this:
- Enter the real estate taxes as an itemized expense. The Real Estate tax deduction (combined with the State Income Tax deduction) is capped at $10,000, so by the time you account for a third property, chances are that you have already hit the cap and entering this as an itemized expense will have no downside.
- Enter the mortgage payment amount as an itemized expense. Make sure to enter it in as a "General Loan" or "Auto Loan". Using one of these two categories is important because they are not inflation adjusted and you don't want your mortgage payment to increase every year.
* Mortgage interest is only deductible for the first two properties owned, so accounting for the interest paid on a third mortgage as a tax deduction is not necessary.
• Have A Government Pension That Doesn't Allow Social Security Spousal Or Survivor Benefits?
TCRP will automatically calculate Social Security Spousal and Survivor benefits, but some government pensions do not allow these benefits. If you and your spouse enter an age to starting claiming Social Security benefits (even if one of you doesn't have a benefit), Spousal benefits are calculated automatically. If you enter a life expectancy age for either spouse, Survivor benefits are calculated automatically. But if you have a government pension that doesn't allow these benefits, simply leave the desired claiming age question blank, and no Spousal or Survivor benefits will be calculated for that spouse. Easy!
• Need To Take A Manual Distribution From 401k/IRA Savings?
There may be a reason why you would want to take a manual distribution from retirement savings (e.g., to help a family member, or to use for a particular expense that you only want to pay from retirement savings), but not have that amount accounted for in the planner. To do this:
- Enter the distribution as a negative contribution for your 401k or IRA on the Income page, in the desired amount.
This will decrease your balance and tax the distribution, but the amount will not be accounted for elsewhere.
If you are taking the distribution to pay for a particular itemized expense in its entirety (you don't want to use any non-retirement savings to help pay for the expense), enter an amount equal to the distribution as an itemized expense and as Non-Taxable Income for the same year (entering it as taxable income would be taxing it twice). This will apply the distribution to expenses for that particular year.
• Plan On Taking Out A 401k Loan?
This may not be a common occurrence, but it does happen. To enter this situation into TCRP:
- Enter a negative contribution amount in the "Traditional Contributions - 401k/IRA" column of the Income page. This will decrease your balance and tax the distribution. Loans would not normally be taxed, so add the amount of the loan and the tax on it to Non-Taxable Income (if the loan is $50k, increasing taxes by $5k, add $55k to Non-Taxable Income). This offsets the tax liability and still leaves the entire distribution as a "spendable" amount.
- Enter the reason for the loan (e.g., a down payment on a house) as an itemized expense.
- Make sure to enter the distribution, expense, and Non-Taxable Income in the same year.
- Annual loan repayment amounts should be deducted from Taxable Income (they are normally taken out of wages
pre-tax) and also entered as 401k contributions for the appropriate years.
Enter a $50K loan/distribution (as a negative contribution). This decreases your balance but also increases taxes
by ~ $5k. By adding $55k to Non-Taxable Income you will have $50k to help pay expenses (that's the point of the loan), and the $5k needed to offset the tax. Since loans will need to be repaid, deduct the amount of the annual loan payments from Taxable Income (since they are normally taken out of wages pre-tax) for applicable years and enter annual 401k contributions in the amount of the repayments.
If the loan will be for something that is not accounted for in the planner (e.g, to assist a family member), enter the loan amount as above, but enter the tax amount by itself as Non-Taxable Income (do not include the loan amount). This decreases your balance and pays for the taxes, but does not account for the loan itself in the planner. You would still decrease Taxable Income by the annual amount of the loan payments, and enter the annual loan payment amounts as 401k contributions.
These entries will not affect/replace the calculations for distributions needed for other expenses or for RMD's in the same year.