OnTrajectory requires you to have at least one Account.
Two reasons: 1. Because you need to save money — and, 2. We need some place to put it.
When you make more than you spend, funds automatically accumulate in your 'DEFAULT ACCOUNT' (the one with a star next to it). This means you don't have to calculate or designate annual savings for now or in the future. We calculate the amount you retain based on income minus expenses/contributions in any given year. By default, all excess cashflow is saved, unless you designate a smaller percentage under Menu / Calculation Options, as shown below:
Think of your Default Account as representing your 'default' investments — like a mutual fund or brokerage account where you would invest extra funds by default. Like other accounts you define (such as a 401k, IRA, Checking/Savings, etc.) contributions can be designated in the Contributions/yr field (as shown below), and those contributions will be made first before contributions to your other accounts — if there are any additional funds after your other defined contributions, they will be added as well.
To create additional accounts, click the "Add Account" button at the bottom of the screen.
Change the properties of an Account by clicking on the wrench icon . Based on the kind of account, different options/fields may be visible/hidden:
Description: Controls certain calculation rules about the account:
Prevent Automatic Drawdown: Unchecked by default, this field controls whether OnTrajectory will automatically draw funds from this account to cover Expenses/Contributions, as required. If checked, funds will NOT be available for Expenses/Contributions until the End Age of the account is reached. For more information, see 'The Contributions / Year Field' section below.
Inherited IRA: Applicable only to IRA Accounts, this field allows you to designate an IRA as 'Inherited', meaning that special RMDs for Inherited IRAs (as defined by the IRS) will be enforced based on the Start Age of the account.
SEPP / Rule-55 Distributions: Applicable only to Retirement Accounts, this field allows you to defined distributions before age 59 1/2 (based on IRS rules) that do not trigger an Early Withdrawal Penalty. Configure these distributions by defining an Age Range with 'Negative Contributions'.
Convert to Roth (on End Age): Applicable only to Traditional IRA and 401k accounts. If checked, when the account's End Age is reached, taxes are paid on the amount converted, and funds are transferred into an automatically created Roth IRA. For more information, see the section 10. Roth Conversions, below
Receives Unfunded Contributions: This option is primarily applicable to modeling Home Equity, however, it is available on other types of accounts as well. If checked, Contributions defined for the account will be made without decreasing any Income or Account. The contributions will simply be added, as if out of thin air.
Owner: Allows you to set a different Owner with a different Birth Year for the account. See Adding a Spouse / Owner for more information.
The Start Age of an account is the age/year you are starting to tracking those funds. The Starting Balance is added to your overall assets (note that start balances are not 'funded' from cashflow, they are simply added to your trajectory). For accounts that start the same year as the beginning of your trajectory, the amounts are all included in the first line of the Grand Total output data table. For accounts that begin at some point AFTER the beginning of your trajectory, the starting balance appears in the "Other Contributions" column, as shown below:
Unlike 'age ranges' for incomes or expenses, account age ranges must be continuous without any gaps between them.
The End Age is the age an account is closed or funds 'rolled-over' to another account. For example, if you have funds in a vacation account and want to use them in a particular year, set the End Age to that year and they will be moved into your 'Default Account' at that time. Funds always go to your default account, however you can define a 1-year age range and contribution to another account if you wish the funds to go somewhere else.
Contributions to an Account can be defined in several ways — based on the type of account selected:
By $ or % — the Annual Contribution amount can be defined as either a fixed dollar amount, represented by $ or as a percentage of Income, represented by %. If a percentage is designated you must select the Income item that the percentage should be based on (for example, many folks contribute to their 401k based on a percentage of their salary).
NOTE: Since 401k contributions depend on income, you must always select an Income item when configuring contributions to it.
In addition, for 401k/403b/457b and HSA account types, you can also designate an Employer Contribution — again, either as a fixed amount ($) or as a percentage (%).
You may ask, what happens if I designate a Contribution to an account, but I don’t make/have enough to cover it? (that’s a great question, btw).
For contributions to a 401k, OnTrajectory will ensure there are sufficient funds from the designated Income source to make the contribution. For other types of contributions, they are treated the same as Expenses and are funded in the following order:
In addition, you may choose to prevent contributions from increasing with Inflation. By default, contributions increase along with Inflation just like Income and Expenses. If you do NOT want a particular contribution to increase with Inflation, click the Do Not Inflate checkbox.
If you wish to designate either a one-time or multi-year amount to remove from an Account, you can do so by creating a new age range and entering a negative amount for the Contribution. The amount will be removed from the account and taxes assessed accordingly. The funds will be deposited into your "Default Account".
This feature gives you the ability to further define your personal Drawdown Strategy. It could be either a one-time drawdown, by defining an age range with same start and end age — or it could be for a number of years.
This topic is discussed more completely in the guide "Drawdown Preferences".
When funds are needed, they are automatically drawn from your various accounts in a specific order. The table below outlines the default order in which funds are drawn-down (NOTE: EWP stands for Early Withdrawal Penalty and typically applies to withdrawals from non-Roth Retirement accounts before age 60. This setting can be turn off under Menu / Calculation Options):
% Growth represents an average rate-of-return over a given period. Obviously, this number is conjecture, but "common wisdom" suggests using about 3% for conservative investments, 5% for medium-risk, and 7% for higher-risk. OnTrajectory offers you other ways to simulate future investment growth, such as Monte Carlo and Historical Simulations. Those are discussed in the guide Monte Carlo and Historical Simulations.
Note: Enter the nominal return rate you expect on your investments. OnTrajectory automatically accounts for inflation when viewing in "Today's Dollars", which is the default view.
This amount is the balance of an account when you set-up the Item. Only the first Range of an Item can have a Starting Balance, therefore it is disabled for any subsequent Ranges of that Item.
OnTrajectory alerts you about potential problems in your plan. There are two types: Notifications and Warnings. If a warning is raised the "Alerts" button will turn dark red. Examples of Warnings include:
Trajectory Shortfall — generated if you run out of all funds before your Trajectory End Age, as shown below. In addition, OnTrajectory can calculate average savings per month needed to make-up the shortfall.
Early Withdrawal Penalties — generated for every year a withdrawal penalty is paid. For example, if funds are used from a 401k prior to Age 60.
Negative Middle — generated if your Trajectory dips negative during your lifetime, but ends with a positive balance
Insufficient Funds — generated when OnTrajectory calculates an annual balance greater than 0, but is unable to fully fund negative cashflow at a particular age.
This can be caused by having a large amount of Home Equity but no 'liquid' cash — or by setting the option 'Prevent Automatic Drawdown' on one or more accounts.
OnTrajectory automatically distributes funds from 401k/403b/457b and Traditional IRA accounts according to IRS rules.
This feature can be disabled or the RMD Start Age changed by going to Menu / Calculation Options. The minimum start age is 70, based on published IRS tables.
If the Account Property "Inherited IRA" is checked, RMDs will begin immediately, based on published IRS tables.
To convert a Traditional IRA or 401k to a Roth IRA, check Convert to Roth on the Item Properties tab. A new Roth IRA account is automatically created and the conversion begins on the account's End Age. For each year funds are converted, taxes are paid and the remaining funds are transferred into the Roth IRA.
You can "ladder" the conversion over a period of years in roughly equal portions. Alternately, you can choose to convert a certain amount each year based on a specific tax bracket.
When choosing Remain within Tax Bracket, the amount converted is based on the maximum amount for the particular tax-bracket selected minus income and annually-taxed gains for that year. The conversion will continue every year until all funds are converted, although it's possible not all funds will be converted depending on other taxable income in a given year.
Set the Max Amount to Convert field to limit the amount of funds converted. If left blank, all funds will be converted based on the properties set, as noted above.
Converted amounts appear in Output Data as a "Rollover Withdrawal" from the source account and a "Defined Contribution" in the target account.
You can see the growth of your individual Accounts on a yearly basis both from a graphing and data perspective. From the Accounts & Taxes tab, press the graph-icon on the tab to get a visual representation of each accounts growth and depletion, as shown below:
For Data, go to Menu / Tools & Data and click "Output Data" to see a table representations of the same information contained in the graph.