Contributions, Roth Basis, and the 5-Year Rule

Money reaches accounts in two ways. Contributions are payroll money that never touches your cash: employer plan and Solo 401(k) deferrals, and HSA contributions. Each one is linked to an income stream. Extra Cash Allocation entries spend the year’s surplus in the order you choose. IRA, 529, and taxable investing live here, and each runs only if surplus remains when its turn comes (how a year works). Dollar limits come from FinZot’s tax tables for each year. This page shows the 2026 values.

Employer plans (401(k), 403(b), governmental 457(b))

An employer plan contribution links three things with one owner: an income stream, a traditional account, and an optional Roth account. The match and a percent of income use the stream’s full earned income. The deferral is capped at the pay left after pre-tax premiums and HSA payroll contributions. You size the employee deferral one of four ways: a specific amount, a percent of income, Maximize Employer Match, which stops at the last matched dollar, or Max Out (Contribute to IRS Limit). A Roth split divides the deferral between the two accounts. The split never applies to the match or to a mega backdoor contribution.

Match tiers are set on the income stream. FinZot computes the match tier by tier against the dollars actually deferred. The match always lands in the traditional account and is booked as non-taxable income. An employer non-elective contribution set on the income stream (income streams) is paid through the same action regardless of the deferral, so a plan where the employee contributes nothing still needs this action, sized at zero.

A Mega Backdoor amount fills whatever room is left under the total plan limit after the deferral and match. It goes straight into the Roth account. FinZot treats it as converted at once, so there is no after-tax 401(k) balance to track. If the deferral is a specific amount or a percent of income, that amount caps the deferral and the mega backdoor together.

Limit (2026)
Employee deferral, shared per owner across 401(k) and 403(b) plans	$24,500
Employee deferral into a governmental 457(b), a separate limit per owner	$24,500
Total per 401(k) or 403(b) plan: employee plus employer plus mega backdoor	$72,000
Catch-up from age 50 at year-end	+$8,000
Catch-up at ages 60 to 63 instead (SECURE 2.0 “super” catch-up)	+$11,250

Catch-ups apply automatically based on age and raise both limits. A governmental 457(b) does not share the 401(k) and 403(b) deferral limit. A person with a 401(k) and a governmental 457(b) can fill both, and each plan gets its own catch-up. A governmental 457(b) has no separate total. Employer contributions count inside its $24,500 limit, so FinZot shrinks the deferral and the match together until they fit. The pre-start retirement contribution (plan start date) is one figure per person, so FinZot counts it against both limits.

A Solo 401(k) works the same way against a self-employment income stream. The employer profit-sharing side is capped at 20% of net self-employment income, which is gross self-employment income minus half of self-employment tax. It always lands in the traditional account. Unlike W-2 deferrals, both the employee and employer sides are above-the-line deductions. A specific amount or percent is a total target, and FinZot fills the employee deferral first. Employee and employer money together cannot exceed net self-employment income. FinZot cuts the employer profit-sharing first.

HSA

An HSA contribution fills the person’s full IRS limit every year. Employer dollars go in first. You state them on the contribution as a specific amount, in today’s dollars unless you mark it nominal, or as a phased schedule. FinZot books them as non-taxable income. Employee payroll deferral fills the rest. If a person has more than one HSA contribution in a year, only the one with the larger employer contribution runs. Family coverage on either spouse means one shared family limit. Two self-only coverages are independent. The 2026 limits are $4,400 for self-only and $8,750 for family, plus a $1,000 catch-up from age 55. The HSA catch-up is the only one you must turn on yourself. On a W-2 stream the employee share is a payroll deferral, capped by the pay left after pre-tax premiums. On a self-employment or other stream it is a direct contribution deducted above the line, with no wage cap, since HSA eligibility depends on HDHP coverage rather than earnings.

IRA, 529, and taxable investing (Extra Cash Allocation)

An IRA contribution is capped by three things, checked in order:

1. The surplus remaining when its turn comes.
2. Household compensation, minus IRA contributions already made that year. Compensation is W-2 wages plus each person’s net self-employment earnings: gross self-employment income minus half of self-employment tax and minus that person’s pre-tax Solo 401(k) contributions. This is what lets a non-working spouse contribute.
3. The IRS limit: $7,500, or $8,600 from age 50, shared across traditional and Roth.

The Roth IRA limit phases out in a straight line over these MAGI ranges: $153k to $168k for single filers, $242k to $252k for married filing jointly, and $0 to $10k for married filing separately. Traditional contributions are allowed at any income. But the deduction phases out when the contributor also makes employer plan or Solo 401(k) pre-tax contributions that year. The deduction ranges are $81k to $91k for single filers, $129k to $149k for the participating spouse when married filing jointly, and $242k to $252k for the non-participating spouse.

A Backdoor Roth option on a Roth IRA contribution gets around the MAGI phase-out. In real life this is a nondeductible traditional IRA contribution converted right away. FinZot models it as a single direct Roth contribution. That is exactly right only while the owner holds no pre-tax IRA dollars, so FinZot checks every year. In any year when the owner’s traditional IRAs hold money at contribution time, or a traditional IRA contribution is active for the same person, the backdoor is skipped and a warning appears on the timeline. Under the IRS pro-rata rule part of the conversion would be taxable, and FinZot does not model that. Inherited IRAs do not count. The backdoor resumes on its own once the conflict clears. Converting the traditional IRA down to zero re-enables it from that same year, because conversions run before contributions. Hiding the IRA, to model a rollover into a 401(k), or removing the traditional contribution also works. The backdoor amount shares the person’s annual IRA limit with their traditional and Roth contributions.

Use the Backdoor Roth option rather than building the maneuver by hand. A traditional contribution paired with a Roth conversion is treated as an ordinary conversion. FinZot does not track IRA basis, so the converted dollars are booked as taxable income, even when the deduction phased out to zero and the real conversion would be tax-free.

529 and taxable investing entries accept a fixed amount, a percent of free cash, or a formula. The percent applies to the full surplus before any entry ran, capped by what remains at this entry’s turn.

Every contribution buys at year-end prices. A dollar contributed in year N earns nothing until year N+1, so contributing early in the year has no effect. Inherited accounts can never receive contributions.

Roth and 529 contribution basis

Each Roth and 529 account has one contribution balance. It starts from the total contributions you enter for the account. This is the total ever contributed as of plan start, not a yearly amount. If you leave it blank, it starts at $0 and FinZot treats the whole starting balance as growth. From there it moves on its own. Every buy adds to it. Every sale reduces it dollar for dollar, down to zero. This is the contributions-first rule: each withdrawal uses up contribution basis before growth.

The 5-year rule and the three Roth states

A Roth account is seasoned five years after the year it was created. Roth IRAs you own share the owner’s earliest creation year, following the IRS per-taxpayer rule, so one old Roth IRA seasons them all. Employer Roth plans run their own clocks, one per plan. An account with no creation year entered counts as seasoned. Inherited Roths are always qualified. Each year, every Roth account you own is in one of three states:

State	Condition	A withdrawal is
Qualified	Seasoned, and the owner turns 60 or older that year. FinZot uses whole years, so 60 stands in for 59½.	Entirely tax-free and penalty-free.
Seasoned, under age	Seasoned only.	Contributions come out first, tax-free. Anything beyond them is ordinary income plus the penalty.
Unseasoned	Fewer than 5 years.	Contributions come out first, tax-free. Anything beyond them is ordinary income, plus the penalty if the owner is under 60.

This collapses the IRS layer-by-layer ordering rules into one contribution balance and one clock; converted amounts are not tracked as their own layer. A penalty waiver does not change the state: a Roth 457(b) is never penalized, and neither is an account under an active SEPP schedule, but earnings withdrawn while the account is not qualified are still ordinary income. When a shortfall sale draws on a Seasoned, under age account, FinZot caps the sale at the contribution balance. That spends the tax-free layer before growth. The growth is still reachable further down the shortfall sequence.

A non-qualified 529 withdrawal is taxed pro-rata instead. The taxable part is the share of the account that is growth. For example, if the account is worth $100,000 and $60,000 of that is contributions, 40% of any non-qualified withdrawal is taxable earnings. If contributions exceed the account value, none of it is taxable.

Roth conversion accounts

A Roth conversion never deposits into a Roth account you defined. Instead, FinZot creates a Roth conversion account, one per source account per conversion year. Each one runs its own 5-year clock, matching the IRS per-conversion rule. The full converted amount lands there and counts as contribution balance, so converted principal can be withdrawn under the contributions-first rule above. Conversion taxes are paid from other funds. The new account copies its source account’s target allocation, because a conversion changes the tax wrapper and never the assets. The exception is when an allocation change has set a target for all of the owner’s conversion accounts (allocation, lots, and selling). After that it behaves as an ordinary Roth IRA you own. Withdrawals and allocation changes can address all of an owner’s conversion accounts as a group.