The Account Specific Withdrawals feature provides even more planning flexibility by allowing you to define exactly which account funds a goal or even another account's contribution. You can use this for even more comprehensive planning, like adding Roth Conversions into a plan, or including Education Planning in a client's Retirement Plan.
When meeting a goal in a Goal Based Plan, inStream will use funds sequentially in the order of: income, taxable accounts, tax deferred accounts, and lastly, tax exempt accounts. This works as a good general rule, but we realize that in practice there may be certain situations where you would rather see the source of funds follow a different order.
With account specific withdrawal you can ensure that the account transactions made in the real world are being reflected exactly the same way within inStream. To see how this works in inStream, please view the example below.
Example: A client would like to receive a distribution of $30,000 per year. He has a tax-deferred account from which he would like to withdraw $10,000. The remaining $20,000 will be withdrawn from a taxable account.
1. To replicate this scenario, you will first input a goal of $30,000.
2. In the account section of the plan cards (also available in plan wizard and profile), there will be the option to “Add Withdrawal”. Under the Tax Deferred Account, you will input a Net Withdrawal of $10,000 and adjust the Start Year, End Year, and Inflation Rate to match the details of the goal. No additional changes are needed for the taxable account.
Note: If you create an account withdrawal but have not included a goal for that year, the money withdrawn will be transferred to taxable accounts.
To incorporate tax efficiency to the plan engine, the tax liability that results from a Taxable Withdrawal or a Tax Deferred Withdrawal will be paid for by Excess Income. If there is no excess income available, the tax liability will be paid in the order of Taxable Accounts, Tax Deferred Accounts, then lastly Tax Exempt Accounts.
Please see the resulting cash flow from the plan details below.
The $10,000 withdrawn from the Tax Deferred Account is reflected in the Gross Tax Deferred Distribution and will partially offset the $30,000 goal. The remaining amount is being withdrawn from the Taxable Account and is reflected in the Gross Taxable Distribution. The tax liability resulting from the Tax Deferred Withdrawal is reflected under Total Income Taxes.
A summary of the client’s withdrawal schedule can be found under Plan Analysis of the Report Builder.
In our Best Practices section we show how to use this feature to model Roth Conversions. We will be adding additional scenarios that can make use of this feature going forward in our support section, however, if you’re ever unsure how to model a particular scenario, you can always reach us directly at email@example.com.