Income Streams
An income stream is money that comes into the plan on a schedule: a salary, a business, a rental, an inheritance. Each stream has an owner, an amount, an effective period, and a type. FinZot collects income at step 1 of every year (how a year works). Social Security and pensions are covered on their own pages.
The four kinds
Section titled “The four kinds”| Kind | Taxed as | Payroll tax | Notes |
|---|---|---|---|
| Earned income | Ordinary income | Employee FICA | W-2 wages. The only kind that can carry an employer match, a pension, or RSU grants (stock compensation). |
| Self-employment | Ordinary income | Self-employment tax | 1099 or business income. Half of the SE tax is deducted above the line. Eligible for the QBI deduction. |
| Other income | Ordinary income | None | Non-employee 1099 income, royalties, alimony, trust distributions. Can be marked QBI-eligible. |
| Tax-free | Not taxed | None | Excluded from AGI and from state income too: gifts, inheritance. Not the way to model municipal interest, which a resident state taxes — hold the fund in a taxable account (income taxes). |
Amount and timing
Section titled “Amount and timing”The amount is gross income per year. It can be a dollar figure in today’s dollars or nominal dollars with an optional growth rate on top of inflation, a formula, or a phased schedule that changes over the years. A stream that starts or ends mid-year is prorated by whole months (plan start date). Earned income normally ends at the owner’s retirement milestone.
Employer match
Section titled “Employer match”An earned income stream can carry an employer match for the employer plan contribution linked to it (contributions). You describe the match as tiers. Each tier has a Threshold and a Match Rate. The Threshold is the width of that tier’s own band of pay. It is not the total deferral the tier reaches. Tier 1 starts at zero and each later tier picks up where the one before it stopped. “100% on the first 3%, then 50% on the next 2%” is a 3% Threshold at a 100% Match Rate, then a 2% Threshold at a 50% Match Rate. On a $120,000 salary that pays $4,800 once you defer 5% of pay. Deferring more than 5% earns no more match. An optional Hard Match Cap limits the total match in dollars per year. The cap is a specific amount, in today’s dollars unless you mark it nominal, or a phased schedule. The match is computed against the dollars actually deferred, lands in the traditional account, and is booked as non-taxable income.
Employer non-elective contribution
Section titled “Employer non-elective contribution”Some employers put money in whether or not the employee contributes: a safe harbor 3% of pay, the FERS TSP automatic 1%, or a university 401(a) plan. Turn on Employer Non-Elective Contribution on the same step as the match and size it as a percent of this job’s eligible wages or a specific dollar amount. It is paid every year the linked contribution is active, even when the deferral is zero, so a plan with no employee contribution still needs a contribution action pointed at the account. It is not limited by the Hard Match Cap. It counts against the plan’s annual additions limit ahead of the match and any mega backdoor contribution, and it lands and is taxed the same way the match does.
The QBI deduction
Section titled “The QBI deduction”Self-employment and other income can be eligible for the qualified business income deduction of 20% (income taxes). A specified service trade or business, such as health, law, accounting, consulting, or financial services, phases the deduction out above the income threshold. Material participation qualifies for the minimum deduction floor.
What income does not do
Section titled “What income does not do”Wages, rental income, and other income never raise the variable spending budget directly. They land in the portfolio and raise future budgets through next year’s balance. Only Social Security and pensions add to the budget as they are paid.