Extra Cash Allocation Order

In a year that ends with more cash than it needed, FinZot runs the Extra Cash Allocation Order. It is a list of entries you order, and each one spends part of the surplus. Whatever the list does not spend is invested in the default account. The list runs at step 10 of the year, and only in a surplus year. In a shortfall year it does not run at all (how a year works).

What counts as extra cash

Extra cash is what survives the year once income has covered expenses, required debt payments, contributions, and the year’s scheduled withdrawals and conversions, minus an estimate of the year’s tax bill. The final bill is computed after the list runs, and a second sweep after it catches anything the exact bill frees up.

The four entry types

You add an entry with Add Extra Cash Action and pick one of four kinds.

• Invest. Buys into an account you name: a brokerage account, an IRA or Roth IRA, or a 529. The money is invested at the account’s target allocation. In a brokerage account it creates a new tax lot at the year’s price (allocation, lots, and selling).
• Pay Down Debt. Pays extra principal on one loan or mortgage you name, on top of its required payment. The payment is capped at the remaining balance. If the loan does not exist yet, the entry waits until it does. The required payment stays the same, so the loan is paid off sooner (debt).
• Recast a Loan. Pays a lump sum on one amortizing loan or mortgage, once, in the year you pick, then reamortizes what is left over the term the loan has left. The payoff date holds and the required payment drops from the following year (debt).
• Optional Expense. Discretionary spending. It is booked as an expense, but it can only spend cash the list still has, so it never causes a shortfall and is not part of the spending budget.

How an entry is sized

Every entry has a size. Every entry but Recast a Loan also has an effective period; a recast happens once, so it has a single year instead. The size is one of:

• a fixed amount, in today’s dollars or nominal dollars, with an optional growth rate
• a percent of free cash, which is a percent of the full surplus before any entry ran, then capped by what remains at this entry’s turn
• a percent of balance, for Pay Down Debt and Recast a Loan only: a percent of the loan’s remaining balance after this year’s regular payment, so the extra payment shrinks as the loan is paid down
• a formula
• Contribute to IRS limit, for an IRA or Roth IRA only

Whatever the size, an entry never spends more than the cash left when its turn comes.

A percent of free cash is a percent of the whole surplus, not of what is left. With $10,000 of extra cash, two entries at 50% each spend $5,000, and together they spend all of it.

Why order matters

Entries run strictly in the order you set. Each one draws on what the entries above it left. An entry with no cap can leave nothing for the rest. When the cash runs out, the remaining entries are skipped that year. A plan can hold up to 50 entries.

IRA entries

An IRA entry is also capped by household earned income and by the per-person IRA limit shared across traditional and Roth. A Roth entry is further limited by the income phase-out unless it is marked Backdoor Roth, which ignores the phase-out but is skipped in any year the owner holds pre-tax IRA dollars. Those rules, and why the Backdoor Roth option beats building the maneuver by hand, are covered in contributions, Roth basis, and the 5-year rule. A household with no earned income that year contributes nothing, with no warning.

A 529 entry has no contribution limit in FinZot.

Where the rest goes

Whatever the list leaves is invested in the default account at its target allocation. After the year’s final tax bill is computed, a second sweep invests anything the exact bill freed up. An entry whose tax effect is not yet known when the list runs, such as a deductible traditional IRA contribution, is sized against the estimated bill, and the second sweep picks up the difference (how a year works).