Pension income cards are one of two ways to enter pensions into RightCapital. These cards can be used to model both current and future pension income streams.
You can add pension income into RightCapital within the Income section of the Profile (or the Income step of the initial data entry process), by clicking Add Income > Pension:
When to use Pension Income Cards
Pension income cards are typically used to reflect Defined Benefit Plans that result in fixed income streams, such as teacher's pensions and government pensions.
Pension plans that are more similar to Defined Contribution Plans (personal pensions, alternative retirement plans for teachers, etc.) can be added as Investments in the Profile > Net Worth area.
Pension Income Data Entry
Click on this card to open a data entry drawer on the right side of your screen, allowing you to input the details:
The Income name will default to [Client's] Pension Income, but you can enter a custom name if you'd like. In joint plans, you will also want to choose either the client or the co-client as the Owner.
Annual amount - The dollar amount that the client will receive each year from the pension.
Income starts - The start year is the first year the income is included in the plan. For clients who are already receiving their pension income, select the 'Already started' option.
Type - indicates the period for which the pension income will last:
- Certain only - reflects payment for a specific duration. If selecting 'Certain only', input the year that income should end in the Guaranteed Period field.
- Life only - reflects payment for the life of the owner. If selecting 'Life only', input the percentage of income that the surviving client will receive upon the death of the owner in the Survivor % field.
- Certain/Life - reflects payments for the longer of either the client's life or the period indicated. If selecting 'Certain/Life', input the year for the Guaranteed Period to the right, as well as the Survivor % at the bottom of the card.
Annual increase - indicates whether and by how much the pension income will increase each year. You can specify whether this is a simple or compounding increase in the Increase type field.
- Simple - increase is calculated based on the original annual income amount, and will be identical each year going forward.
- Compound - increase is calculated based on the original annual income amount, plus accumulated interest of previous periods.
Cost Basis - optional parameter for non-qualified pensions, representing the total amount paid into the pension by the client. If the pension is qualified, leave this field at $0.
Exclusion Ratio - optional parameter for non-qualified pensions, representing the percentage of the pension income that is not taxable until the cost basis is depleted. If the pension is qualified, leave this field at 0%.
Non-Covered - for pensions paid by an employer that does not withhold Social Security taxes, the 'Non-covered' box can be checked. In applicable cases, Social Security benefits may be reduced as a result of WEP or GPO.
State Tax Exempt - For pensions that are not subject to state tax, you can check the ‘State tax exempt’ box. If the box is left unchecked, pension income will be subject to state-specific taxes, based on the client's resident state.
Additional Information
Pension Taxation
Pension income will be taxed as ordinary income within client plans, and can be found on Line 5 of the 1040. Sample tax forms can be viewed in the Tax > Tax Estimate > Details tab:
For pensions that are that are not subject to state tax, check the 'State Tax Exempt' box within the pension income card. For pensions that are federally tax free, we recommend using an 'Other Income' card with the 'Taxes' field set to Tax Free.
Pension Cash Flows Location
Pension income can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Income Inflows column:
