FAQ: Why Do I Have a Balance in the Cash Account Column?
The Cash Account in the platform serves as a placeholder for surplus or shortfall scenarios when the system doesn't have a predefined destination for cash flow. Here's a breakdown of how it works and why it might appear in your plan:
Role of the Cash Account
- Surplus Management:
- If the platform detects surplus cash (e.g., from inheritance or mandatory withdrawals like RRIF/LIF withdrawals) but lacks an eligible destination (like a TFSA or non-registered account), it allocates the surplus to a Cash Account.
- This ensures the funds are tracked but may result in suboptimal growth, as cash typically earns a low return.
- Shortfall Coverage:
- If overrides restrict the platform's ability to access funds from accounts to cover expenses, taxes, or contributions, the platform may create a negative cash balance, representing debt incurred to meet obligations.
Common Scenarios Leading to a Cash Account
- Surplus Without Proper Allocation:
- Large inheritances or unspent mandatory withdrawals that exceed retirement spending needs.
- Lack of enabled non-registered accounts to absorb surplus funds.
- Excessive Overrides:
- Overriding specific amounts in various accounts can limit the platform’s flexibility, forcing it to allocate surpluses or shortfalls to the cash account.
- Unaccounted Tax Obligations:
- Taxes or other obligations requiring funds when no other sources are available.
Best Practices to Avoid Cash Account Issues
- Enable a Non-Registered Account:
- To absorb surplus funds and keep them invested for better returns.
- Minimize Overrides:
- Allow the platform to optimize cash flows and account withdrawals instead of setting strict overrides.
- Plan for Mandatory Withdrawals:
- Anticipate and allocate excess RRIF or LIF withdrawals to avoid unintended accumulation in cash.
- Review Spending Goals:
- Adjust spending assumptions if there’s consistent surplus, ensuring plans align with retirement needs.