The software’s notional default cash accounts (e.g. Tim’s Cash) can now be set to sweep surplus windfalls into debts. Previously, sweeps rules could only be used to automatically transfer surplus windfalls into specified accounts. Now in addition to accounts, sweeps rules can be used to apply surplus windfalls toward debts too. While onetime overpayments on debts can be easily scheduled, there was no option to assume additional debt paydowns or the payoff of a debt would occur automatically whenever a windfall was realized. Now sweeps rules can be used to move surplus toward the paydown (or payoff) of outstanding debts, which is a considerable convenience.
How to set surplus lump sum inflows to pay down debts
In addition to scheduling regular or onetime debt overpayments or scheduling the future payoff of debts, all options that you will find when editing a debt, the option is now also available to apply surplus windfalls toward outstanding debts. This special sweep option is found only on Default Surplus Accounts, as pictured below on the Dashboard screen.
Selecting a default surplus account and you will find a Sweep Option link in the left navigation, as pictured right.
The Sweep Options shows the accounts and now also debts into which surplus windfalls can be swept. Debts receive priority. If you select one or more outstanding debts, then the software will apply any leftover surplus windfalls toward those debts and in the order specified, until these debts are all paid off, after which funds may then be deposited into one or more specified accounts.
Note –Debts will be paid down in the order in which they are selected. Paydowns are not spread evenly across multiple selected debts. The software will apply swept surpluses to the first debt, the debt positioned at the top of the list of selected debts, until it is paid off before moving on to the next. Click a selected debt and arrows will be shown allowing you to move it up or down in the list, in addition to an option to delete/remove the debt form the sweeps list.
About Surplus Lump Sum Inflows and Default Cash Accounts
AdviserGo is set to assume that surplus habitual income – that is, income from earnings or withdrawals from investments – is spent if you don't make any plans to save it. We make this assumption to prevent the accumulation of large and usually very unrealistic surplus cash reserves when in most cases clients would probably spend this money on various discretionary purchases that are not accounted for in the plan.
The software does make exceptions, however, for special kinds of lump sum inflows. If you schedule a future windfall, if a profit is cleared from the sale of a property, if a person dies and their estate is distributed, if there is a lump payout from a pension or an insurance policy, these lump sum inflows are assumed saved. And if you don't use a transfer or contributions to tell the software where to invest this money, AdviserGo will deposit it by default into the owner's default Surplus Account (e.g. Johnny's Cash). Every person in a plan is given a eponymous default cash account automatically by the software. These notional accounts are designed specifically to hold such surplus windfalls.
Sweeps rules can be set to automatically move balances from Surplus Cash
It might be fair to assume that your client would never leave such large sums of cash in savings. The software has a convenient option to set a rule to automatically sweep any leftover surplus cash from the earner's/owner's default cash account (e.g. Johnny's Cash) into to one or more target accounts.
It is important to understand that sweeps are not percentage based. The entire balance of the default cash account will be swept into the specified target account at the end of the planning year. If you schedule sweeps to go first into accounts that have annual contribution limits, then the amounts swept will be only up to the maximum allowable annual contribution allowance. If a savings account or an investment, an account that has no contribution limit, were placed lower in the list of target accounts, then that account would receive the remainder of the funds when swept.
Conversely, if a savings account or investment were placed at the top of the list of sweeps accounts, then that account would invariably receive one hundred percent of the swept funds since neither have rules imposing contribution limits.