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An account’s type decides three things in every projection year: whether the balance earns investment returns, whether money going in reduces taxable income, and how much of a withdrawal is taxed. Owner matters too, because the owner’s age sets catch-up limits, the age-59½ penalty line and required distributions.
Checking and savings hold cash at 0%. Every other type grows at your investment assumptions, and only a taxable brokerage account pays tax on dividends each year.
| Account type | Growth | Money going in | Money coming out |
|---|---|---|---|
| Checking, Savings | None (0%) | No deduction | Untaxed |
| Traditional 401(k), Traditional 403(b) | Investment return; dividends reinvested untaxed | Payroll only; excluded from taxable wages | Ordinary income; 10% additional tax before 59½; required distributions |
| Roth 401(k), Roth 403(b) | Investment return, untaxed | Payroll only; no deduction | Untaxed once qualified; otherwise earnings share taxed |
| Traditional 457(b) | Investment return; dividends reinvested untaxed | Payroll only; excluded from taxable wages; its own limit | Ordinary income; no 10% additional tax; required distributions |
| Roth 457(b) | Investment return, untaxed | Payroll only; no deduction; its own limit | Untaxed once qualified; otherwise earnings share taxed, with no 10% additional tax |
| 401(a) | Investment return; dividends reinvested untaxed | Employer contributions only | Ordinary income; 10% additional tax before 59½; required distributions |
| Traditional IRA | Investment return; dividends reinvested untaxed | Deducted from taxable income; income limits apply with a workplace plan | Ordinary income; 10% additional tax before 59½; required distributions |
| Roth IRA | Investment return, untaxed | No deduction; income limits apply | Contributions first, untaxed; earnings taxed until qualified |
| Taxable Brokerage | Investment return; dividends taxed each year | No deduction; adds cost basis | Gain share taxed at capital gains rates |
| HSA | Investment return, untaxed | Deducted, payroll or surplus | Untaxed up to modeled medical costs |
| 529 Plan | Investment return, untaxed | No deduction | Untaxed |
| Other | Investment return, untaxed | No deduction | Untaxed |
Labels match the Account Type menu. The sections below give the rule behind each cell.
At the start of each year, every investment account grows by its stock and bond mix: the stock share earns Stock price growth plus Stock dividend yield, and the bond share earns Bond return. Dividends are reinvested in the same account. Only in a taxable brokerage account are they income that year, taxed as qualified dividends, and each reinvested dollar adds a dollar of cost basis. Price growth is unrealized until you sell.
Taxable Brokerage
| Opening balance | $100,000 | |
|---|---|---|
| + | Price growth at 7% | $7,000 |
| + | Dividends at 2%, reinvestedTaxed this year; adds $2,000 of basis | $2,000 |
| = | Year-end balance | $109,000 |
Traditional IRA
| Opening balance | $100,000 | |
|---|---|---|
| + | Price growth at 7% | $7,000 |
| + | Dividends at 2%, reinvestedNot taxed; taxed only when withdrawn | $2,000 |
| = | Year-end balance | $109,000 |
The balances match; the difference is the tax bill. The default dividend yield is 0%, so unless you set one, a brokerage account’s whole return is price growth and it creates no tax until you sell.
Checking and savings don’t grow. Contributions made through the year earn part of a year’s growth, and money withdrawn through the year gives up the growth it would have earned; see How balances grow each year.
Employer plans, the 401(k), 403(b), 457(b) and 401(a), are funded only by payroll rules tied to an earned income. Every other type can receive surplus through your income allocation rules; HSAs can be funded either way.
- Traditional 401(k), 403(b) and 457(b) and HSA payroll contributions come out of pay before income tax. HSA payroll contributions also skip payroll taxes only when you mark the funding as a cafeteria plan.
- 401(a) plans take employer contributions only. Set an employer rate on a payroll rule; an employee rate isn’t accepted.
- Traditional IRA and HSA contributions from surplus are deducted from taxable income. When the owner or their spouse contributes to a workplace plan that year, the IRA deduction phases out with income; see Contributions, employer match and limits. The full contribution is still deposited.
- Roth 401(k), 403(b), 457(b) and Roth IRA contributions are made with taxed money. An employer contribution to a Roth workplace plan is taxed as income in the year it’s made.
- Taxable Brokerage deposits add to cost basis dollar for dollar.
- 529 Plan, Other, Checking and Savings deposits have no tax effect.
Annual limits apply per owner to workplace plans, IRAs and HSAs. A person’s 401(k)s and 403(b)s share one employee limit. A 457(b) has its own limit and catch-ups, so someone with a 457(b) and a 401(k) or 403(b) can defer up to twice the limit; employer money paid into a 457(b) counts toward its limit. Limits, catch-ups and employer contributions are in Contributions, employer match and limits.
Withdrawals happen when an expense is funded from a specific account, when a shortfall is covered in your drawdown order, or as a required distribution.
- Traditional 401(k), 403(b), 401(a) and IRA: the full withdrawal is ordinary income. The share of the year before the owner turns 59½ also pays the 10% additional tax, unless the account is inherited or funds an active substantially-equal-payment series (see Early withdrawal penalties and Roth ordering). Required distributions start at the owner’s required beginning age.
- Traditional 457(b): ordinary income and required distributions like a 401(k), but no 10% additional tax at any age. CoastMath treats every 457(b) as a government employer’s plan, whose early withdrawals aren’t penalized.
- Taxable Brokerage: the gain share of a sale, the withdrawal times one minus basis ÷ balance, is a capital gain taxed at long-term rates; a sale below basis realizes a loss. See Opening balances and cost basis.
- Roth IRA: all of one owner’s Roth IRAs are treated as one. Withdrawals come from regular contributions first, then conversions oldest first, then earnings. Earnings are taxed, and can be penalized, until the account is qualified: owner 59½ or older and five years after the first Roth contribution year.
- Roth 401(k), 403(b) and 457(b): each withdrawal before qualification is part basis and part earnings, in proportion to the account. A Roth 457(b) still needs the five years and age 59½ to qualify, but its taxed earnings carry no 10% additional tax.
- HSA: untaxed up to the year’s modeled qualified medical costs; the rest is income, plus 20% before 65. See Health savings accounts.
- 529 Plan: untaxed and never penalized. See 529 education savings.
- Other, Checking and Savings: untaxed.
Each account belongs to the Primary person, the Partner, or, except for IRAs, workplace plans and HSAs, Joint. The owner’s age sets that account’s catch-up limits, the 59½ penalty line and the start of required distributions; joint accounts use the primary person’s age. When a partner dies, their accounts pass to the survivor (see When a partner dies).
Liquid net worth is account balances minus debt. It sets when liquid-net-worth milestones are reached and the financial independence estimate, and the Monte Carlo test that marks a trial failed when liquid accounts run out. By default every account counts unless withdrawals from it are locked that year. Liquid net worth in the account form overrides that: Always count it as liquid includes the account even while it is locked, and Never count it as liquid leaves it out every year. Total net worth always includes the account, and the override doesn’t change how it is withdrawn.