People and Life Events

A plan has a primary person and, if married, a spouse. Their birth dates and the plan start date are shared by every scenario (scenarios). Almost everything else about the household, including marital status, life expectancy, state of residence, and children, lives on each scenario and can differ between them.

The two people

Every account, income stream, and Social Security benefit has one owner, either the primary person or the spouse. There are no joint accounts. The owner’s age drives every age-based rule: the 59½ test, RMD start, catch-up contributions, Medicare at 65, and the Rule of 55. Ages are whole years, so a rule that turns on at 59½ applies from the year the person turns 60.

Each person has a Life Expectancy, the expected age at death. That year is a timing anchor and it ends the plan for a single person. For a couple, the plan runs until the second death.

Each person also chooses their First-Year RMD Timing, on schedule or deferred to the following year (Roth conversions and withdrawals).

Marital status and filing status

A scenario is Single or Married. Filing status follows from it each year. A married household files jointly. A single person files as single, or as head of household with a dependent child. A child is a dependent while under 19. Married filing separately is not modeled (income taxes). Marrying during the plan is not supported.

Children

Each child has a birth year. A child’s age is a timing anchor, so a 529 expense can start at 18 and a support expense can end at 22. Children under 17 qualify for the child tax credit. Dependent children also count toward household size for the ACA poverty level test, and decide head of household and qualifying surviving spouse status.

When a spouse dies

A spouse’s death happens in the year they reach their life expectancy. In that year:

• The household still files jointly for the year of death. For the next two years the survivor files as qualifying surviving spouse if a dependent child lives with them, and otherwise as single or head of household. After that they file as unmarried.
• A pension with a survivor election pays the spouse’s percentage for the rest of the survivor’s life (pensions).
• The cost basis of every taxable lot, and of every property, steps toward market value by the state’s rule: 100% in community property states, 50% elsewhere (allocation, lots, and selling, property).
• The spouse’s earned income and expenses tied to the spouse’s longevity end.
• From the following year, the survivor is paid the larger of their own Social Security benefit and a survivor benefit based on the deceased spouse’s record (social security).
• The spouse’s accounts stay in the plan and pass to the survivor as their own, the way a spousal rollover does. RMDs on a pre-tax account then follow the survivor’s age and first-RMD timing. The accounts are not treated as inherited.

Moving to another state

A move changes the household’s state of residence, and optionally its local tax locality, from a date, an age, or a milestone you choose (milestones and timing). Residence changes for the whole calendar year, so a month on the move has no effect. From that year on, FinZot applies the new state’s income tax brackets, deductions, exemptions, retirement income exclusions, Social Security treatment, and basis step-up rule (income taxes). A withdrawal sized to a state tax bracket keeps its target rate across the move. Where the new state has no income tax, the fill never binds and the entry reports the target as unreachable.

The heir tax rate

The Heir tax rate is a plan-wide estimate of the ordinary income rate your heirs would pay on inherited pre-tax balances. FinZot uses it to discount traditional accounts to their after-tax estate value in legacy figures, and to gross up the legacy target so a legacy held in pre-tax dollars reserves more balance than the same legacy in Roth. It does not affect any tax the plan itself pays.

The Legacy figure in results is final net worth minus the heir tax rate times the final traditional balance. Only traditional (pre-tax) balances are discounted. Every other asset enters at full value, and debt is subtracted at face. FinZot models no estate tax, inheritance tax, or probate cost.