Monthly Archives

July 2018

Are you leaving behind a giant tax bomb for your kids?

By | Tax Planning | No Comments

The problem with taxes and inheritance is often misunderstood. After all, an inheritance is a gift, so why should anyone worry about having to pay taxes on a gift? The problem isn’t one of having to pay the taxes; it’s when they come due.

The money that you have been tucking away into your traditional IRA or other retirement-savings vehicle has enjoyed tax-deferred growth. These accounts are built up using money that came out of your paycheck before the taxes were paid. Eventually, those taxes have to be paid, either by you or by someone else such as your spouse, your children, or your grandkids.

The question is, will your kids have to pay your tax bill all at once, or over a period of many years? This is the vital distinction to be made, and it is a problem that proper tax planning can solve with relative ease. The real gift to your loved ones isn’t just a reduced tax bill, however, but a larger overall inheritance.


The IRS isn’t going to wait around forever to collect on the taxes you owe inside of your IRA or tax-deferred account. They have a published set of guidelines that explains when they want you to start taking this money out. This mandatory withdrawal, known as your Required Minimum Distribution or RMD, applies to both IRAs and defined-contribution plans such as 401(k)s.

Your RMD is an amount calculated by the IRS that uses your age and average life expectancy rates to set up a payment schedule of the taxes you owe, so it falls within a reasonable time frame. The absolute latest you can start paying those taxes is the age of 70 ½.

When you pass away and leave your IRA to your beneficiaries, they will inherit your tax debt. Not only do they have to pay the taxes on the money that you earned, but they have to pay it according to the federal guidelines of your life expectancy, not theirs.


When your child or grandchild inherits your IRA, as a non-spousal beneficiary, she will be required to take distributions out within five years of inheriting. Even if she rolls that inherited money into her own IRA, that money still becomes taxable. That means she could have thousands of dollars in taxes due come April. There is a way to avoid this.

A Stretch IRA isn’t a new kind of IRA, but rather it’s a benefit of the tax code. Both traditional and Roth IRAs can be stretched. You can work with a qualified financial advisor to set up your IRA correctly so that when your daughter inherits, she can’t make the mistake of doing the wrong thing with the money. The Stretch option structures the inheritance for her so the money continues to grow, and the taxes are due according to the tables of her life expectancy and not yours. This means a tax schedule that is manageable and, ultimately, more money for her.

The question that proper tax planning answers isn’t who will pay, but rather when. With a little planning, it’s possible to grow and stretch the amount of money your loved ones will receive without it having to cost you anything extra. Ask your financial professional if a Stretch IRA is right for your situation.

How successful retirees invest in the stock market: 3 easy steps

By | Retirement, Retirement Investing | No Comments

Investing in the stock market is an important part of any long-term investment strategy, but during retirement, the roller coaster ride that is today’s market can be a little difficult to stomach. While risk tolerance is a personal thing, everyone needs to recognize the two important changes during retirement that affect your ability to earn returns.

One: You stop adding money to your retirement accounts.

Two: You begin taking money out of your retirement accounts.

These two things matter regardless of your risk appetite, because they are connected to the one thing every investor must have in order to invest successfully in the stock market: TIME.

The average retiree has less time than the average investor who is in their 30s or 40s. Having less time means you aren’t able to capitalize on the best that the market has to offer – long-term strategies such as dollar cost averaging – without making a few adjustments first.

BUT – that doesn’t mean you don’t have any time. Today’s retirees are living longer than any generation before them, which means having a long-term investing strategy is a necessary part of any retirement plan. Here are three steps you can take today to ensure your market investments don’t send you screaming to the poor house.


Dollar cost averaging is an effective investment strategy whereby you invest the same number of dollars regardless if the market is high or low. If you buy when stock prices are low, you continue to invest so that when stock prices go high, you effectively make a profit.

When the market falls during retirement, however, you are no longer buying those stocks when they are cheap, because you are no longer adding money to your portfolio. Furthermore, you’re also taking money out of your investments.  This means when the market takes a loss, you also take a loss – twice.

One way to avoid taking this double-hit is to change your investment strategy from one of accumulation to preservation. Instead of keeping all your money in the market in growth-mode, move a portion of your funds to a safer place where the principal is protected.


You can work with a financial professional to devise an income plan if you are unsure about how much money you need to maintain your lifestyle during retirement. Generally speaking, most retirees find they require 70 to 80 percent of their current income in order to maintain their lifestyle during retirement.

Many investors rely on annuities to structure their retirement income because they offer the kind of principal guarantees that market investments do not. For example, during the market downturn of 2008, many retirees lost as much as 40 percent of their portfolios and, that affected how they spent their money. Investors who had the money they needed for income secured inside an annuity, however, still received their income and were able to maintain their lifestyle.


Everyone needs to have some sort of emergency saving fund, but retirees especially need to have access to cash. Your reasons for needing the cash could be happy or sad, but regardless of why, you don’t want to have bad timing.

If all your money is sitting in market investments and your daughter is getting married, imagine what would happen if the market took a hit and you had to sell at a loss just to take out your money.

Our stock markets are currently in a global economy where news from overseas can send the market plunging inside a single day. You don’t have to leave yourself vulnerable during retirement. Take these three steps to ensure your ride through retirement is a smooth one.

Have questions about the allocation of your retirement portfolio? We’re here to help. Call SF Financial in Colorado Springs at (719) 597-2179.

Do You Have a Retirement Account or a Retirement Plan?

By | Retirement | No Comments

For today’s retirees who are going pensionless into their golden years, it’s important to understand what all this noise about “retirement planning” is really about. A lot of people think because they have a 401(k) or an IRA that they have already done their retirement planning. This couldn’t be farther from the truth.

If you have investments – stocks, bonds, 401(k)s, life insurance and IRAs –  then what you really have is a collection of parts. That’s like having a crankshaft, spark plugs, pistons, and an alternator instead of having an engine. A collection of investments is not the same thing as having a plan. Without knowing how to put everything together, you might not get very far when it comes to generating income and this, more than anything, is what leads to every retiree’s worst fear: running out of money.


It’s been said that people spend more time planning for their vacations than they do planning for retirement and it’s no wonder – financial planning doesn’t sound very fun. But when you consider that today’s retirees are enjoying longer life expectancies, then you’ll understand the need for more income has expanded. Planning for retirement, then, is in many ways just like planning for one long vacation.

When you have a plan put together, you know the answers to the following questions:

  • On the day that I retire and stop drawing a paycheck, where is my income going to come from?
  • Where should I put my 401(k) and IRA money?
  • If something happens to my spouse, will they have enough money?
  • How much will my health care cost without my employee benefits?
  • When is the best time to take my money out of my accounts so I pay as few taxes as possible?
  • What spousal benefits am I entitled to under Social Security rules and when is the best time to file?
  • Is there a way I can obtain long-term care insurance even with a health condition?
  • Is there a way I can buy a new car without paying fees, penalties, and extra taxes just to get my money?
  • Do I know when to take my RMD?
  • Have I heard about the QLAC?
  • Do I really need life insurance?
  • Am I accidentally disinheriting my children and grandchildren because of a stupid mistake?
  • Do I know how to take advantage of the Stretch IRA?


The Social Security Administration office is not allowed to give you advice about when and how to file for your Social Security benefit; they can, however, send you the paperwork. Your Human Resource department at work might give you some advice about your health insurance benefits, and your tax guy might tell you about the IRA penalties, but who will coordinate all these decisions together so that your portfolio hums along, giving you the greatest mileage with the most efficiency?

Getting the right kind of advice at the time of retirement is even more important today than it’s ever been. With forces like inflation, rising healthcare costs, low interest rates on guaranteed products and high market volatility, every dollar you have saved in your retirement accounts needs to pull its weight.

If you’ve worked hard and saved for retirement, then you deserve a plan that coordinates income, taxes, and investment considerations with your goals and priorities. A plan isn’t something you can buy off the rack like a T-shirt or a ball cap. It’s something that needs to be tailored using the materials of your investment portfolio, your family situation, and your goals.

You have worked hard to earn the collection of parts that make up your investment portfolio. Isn’t it time to put everything together to get your income up and running?