Category: Podcast

Qualified vs. Non Qualified Accounts: What It Really Means for Your Money

Posted on by Brian Colvert

Qualified vs. Non-Qualified Accounts?

The account type you choose could change your tax bill, and your retirement timeline.

Understanding how your investments are taxed isn’t just for accountants. It’s one of the most important pieces of your long-term financial picture. The truth is, not all investment accounts are created equal, and the difference between qualified and non-qualified accounts can have a big impact on how much you keep and how much goes to the IRS.

Today we’ll break down what each account type means, how they’re taxed, when you can access your money, and how a well-balanced mix can set you up, on your own timeline.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

What Is a Qualified Account?

Let’s start with the basics.

A qualified account is a retirement account that meets specific IRS rules to receive tax advantages. Think of these as the “officially recognized” retirement savings vehicles like your 401(k), Traditional IRA, Roth IRA, SIMPLE IRA, or SEP IRA.

The key benefits?

  • You might receive a tax deduction on your contributions.

  • Your investments grow tax-deferred (or tax-free in the case of Roth accounts).

  • You may be eligible for employer matching in workplace plans.

These accounts are designed to help you save for the long term. The IRS offers these benefits to encourage people to plan for retirement, but in exchange, there are rules about when and how you can access the money.

How Qualified Accounts Are Taxed

In most qualified accounts, you’re either deferring taxes until later or paying them upfront for future tax-free growth.

Here’s the quick breakdown:

Type of Account When You Pay Taxes Tax Advantage
Traditional 401(k) / IRA When you withdraw Contributions reduce your taxable income today; growth is tax-deferred
Roth 401(k) / IRA Before you contribute Withdrawals in retirement are tax-free (if rules are met)

When you eventually take money out, typically in retirement, it’s taxed as ordinary income. That means the withdrawals get added to your income for that year and taxed at your marginal rate.

There are also Required Minimum Distributions (RMDs) for most qualified accounts, starting at age 73 (for most individuals). The government wants its share eventually.

Withdrawal Rules

The biggest limitation of qualified accounts is accessibility. The IRS designed them for retirement, so you can’t typically touch the money until age 59½ without paying penalties. Withdraw early, and you’ll likely face:

  • 10% early withdrawal penalty

  • Income tax on the amount you take out (unless it’s a Roth contribution)

There are exceptions, for example, certain first-time home purchases, education expenses, or hardship withdrawals, but for most investors, it’s best to view these accounts as untouchable until retirement.

What Is a Non-Qualified Account?

Now let’s look at the other side of the coin.

A non-qualified account is any investment account that isn’t registered under a retirement plan. It’s funded with after-tax dollars, meaning you don’t get a deduction for contributing, but you gain flexibility.

Examples include:

  • Brokerage accounts

  • Trust accounts

  • Individual or joint investment accounts

There’s no contribution limit, no withdrawal restriction, and no early penalty for accessing your money. You can invest as much as you want, whenever you want, and withdraw it at any time.

The trade-off? You’ll pay taxes on your earnings as they happen.

How Non-Qualified Accounts Are Taxed

Here’s where it gets interesting, and where many investors get tripped up.

In a non-qualified account, you’ve already paid taxes on the money you put in. You won’t be taxed again on your original investment. But you will owe taxes on the growth, the profits your money earns through dividends, interest, or capital gains.

Let’s use an example:

You invest $100,000 in a brokerage account. Over time, it grows to $150,000.

  • Your original $100,000 has already been taxed.

  • The $50,000 gain is what’s subject to tax.

How much you pay depends on how long you held the investments and what type of income it generated.

Type of Gain Holding Period Taxed As
Short-Term Capital Gains Less than 1 year Ordinary income (your regular tax rate)
Long-Term Capital Gains More than 1 year 0%, 15%, or 20%, depending on income
Dividends / Interest Varies Typically ordinary income or qualified dividend rate

Flexibility and Liquidity

The beauty of non-qualified accounts is access. You don’t have to wait until you’re 59½ to use the money. That makes these accounts especially useful if you plan to retire early, buy a property, or fund a child’s education before your official retirement age.

They also provide a way to keep investing after you’ve maxed out your qualified accounts. For clients striving for financial independence before 65, non-qualified accounts are often the bridge between the working years and full retirement.

Taxes in Motion: Comparing the Two

Think of the difference like this:

  • Qualified accounts are “pay later.” You get a tax break now, but pay taxes when you withdraw.

  • Non-qualified accounts are “pay as you go.” You pay taxes on the earnings each year, but enjoy flexibility and liquidity.

Here’s a side-by-side summary:

Feature Qualified Account Non-Qualified Account
Tax Treatment Tax-deferred or tax-free (Roth) Earnings taxed annually
Contribution Limits Yes (e.g., $23,000 for 401(k) in 2025) None
Withdrawal Rules Restricted until age 59½ Withdraw anytime
Penalties Possible early withdrawal penalties None
Required Minimum Distributions Yes No
Ideal For Long-term retirement savings Flexible, mid-term, or early-retirement goals

The Strategy Behind Both

Having both types of accounts is like having different tools in a toolbox. Each serves a purpose depending on your financial goals and timeline.

1. Tax Diversification

Just as you diversify your investments, you should also diversify your tax exposure. When you have both account types, you can strategically decide where to withdraw from each year to minimize taxes in retirement.

For example:

  • In years when your income is lower, you can withdraw from qualified accounts at a lower tax rate.

  • In higher-income years, you can rely more on non-qualified accounts or Roth assets, avoiding additional taxable income.

That’s what we call tax-efficient retirement income planning.

2. Tax-Loss Harvesting

One of the most talked-about strategies in non-qualified accounts is tax-loss harvesting, the art of turning market dips into potential tax savings.

If you sell an investment at a loss, you can use that loss to offset gains elsewhere in your portfolio. If your losses exceed your gains, you can even use up to $3,000 to offset ordinary income, carrying the rest forward for future years.

It’s not always fun (because it means something went down), but it’s a smart way to make volatility work for you.

Remember: tax-loss harvesting only applies to non-qualified accounts, not to IRAs or 401(k)s, because those are tax-sheltered until you withdraw.

3. Borrowing Against Your Investments

This is a little-known but powerful strategy.
In a non-qualified account, you can borrow against your portfolio using an asset-based line of credit.

For example, if you hold $500,000 in appreciated stock, you could borrow against it for liquidity,say, for a real estate purchase—without selling the stock or realizing a taxable gain.

The stock remains your collateral, your investments stay intact, and you get access to cash when needed. This is often how high-net-worth investors fund major purchases tax-efficiently.

4. Planning for Early Retirement

If your goal is to retire before 59½, non-qualified accounts are essential. While qualified plans are excellent for long-term growth, they’re not designed for early withdrawals. Having a healthy non-qualified balance gives you bridge money to cover the years before you can access your retirement accounts penalty-free.

That flexibility can make the difference between retiring at 55 and waiting until 65.

Qualified vs. Non-Qualified Account Comparision

Qualified-vs.-Non-Qualified-Accounts-Comparison

Common Mistakes to Avoid

Even experienced investors can make missteps with how they use their accounts. Here are a few pitfalls to watch for:

  1. Overfunding one account type.
    Putting every dollar into your 401(k) can leave you “asset rich but cash poor” if you want to retire early.

  2. Ignoring tax consequences of trading.
    Frequent buying and selling in a non-qualified account can create unnecessary short-term gains.

  3. Not planning withdrawals strategically.
    Taking all income from one source in retirement can push you into higher tax brackets.

  4. Neglecting beneficiary designations.
    Qualified and non-qualified accounts can pass differently to heirs—another reason to coordinate your estate plan.

Building a Balanced Financial Plan

The most effective financial strategies don’t rely on a single type of account, they blend them intentionally.

At Bonfire Financial, we help clients balance qualified vs. non-qualified accounts based on their goals, income, and retirement vision. For some, that means prioritizing 401(k) contributions for the tax deduction. For others, it’s about maximizing brokerage savings for flexibility and access.

The right mix depends on:

  • Your income level (and current tax bracket)

  • Your retirement timeline

  • Your desired lifestyle before and after 59½

  • Your comfort with market risk and liquidity

By coordinating both account types, you can minimize lifetime taxes, maintain flexibility, and design a strategy that adapts as your life changes.

The Big Picture

At the end of the day, qualified vs. non-qualified isn’t a competition, it’s a collaboration.

Qualified accounts help you build a tax-deferred foundation for the long haul. Non-qualified accounts give you the agility to handle life’s changes along the way.

When you understand how these accounts work, and more importantly, how they work together, you can make smarter decisions that keep more money in your pocket and help you retire on your terms.

Final Thoughts

The account type you choose truly can change your tax bill, and your retirement timeline. But you don’t have to figure it out alone. The best strategies are built around your specific goals, lifestyle, and timeline.

If you’re ready to make your money work harder, and smarter, for you, our team at Bonfire Financial can help you create a plan that balances tax efficiency, liquidity, and long-term growth.

→ Schedule a meeting with us to start building your personalized investment strategy.

Maxed Out Your 401k? Here’s What to Do Next

Posted on by Brian Colvert

What to Do After You’ve Maxed Out 401k Contributions

For high-income earners and diligent savers, few milestones feel as rewarding as realizing you’ve maxed out your 401k for the year. It’s a signal that you’re prioritizing your financial future and taking full advantage of one of the most powerful retirement savings tools available.

But once you’ve hit the annual contribution limit, an important question arises: what do you do next?

Should you explore Roth options? Open a taxable brokerage account? Look at real estate? Or maybe even consider advanced strategies like a mega backdoor Roth? Today we’ll explore all this and more.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

Understanding the 401k Contribution Limits

Before exploring what to do next, it’s important to understand what “maxing out your 401k” really means.

Each year, the IRS sets limits on how much you can contribute to your 401k as an employee. These limits vary depending on your age, and additional “catch-up” contributions are available if you’re over a certain age. Employers can also make contributions, such as matches or profit-sharing, which can significantly increase the total amount going into your account.

When people say they’ve maxed out their 401k, they’re typically referring to reaching the maximum amount they’re personally allowed to defer from their salary. That doesn’t always include employer contributions, which can add even more to your retirement savings.

Since these numbers are updated regularly, you’ll want to check the most current limits here: Current Contribution Limits.

Step One After Maxing Out: Consider a Roth IRA

Once you’ve maxed out your 401k, the next logical place to look is a Roth IRA.

With a Roth IRA, you contribute after-tax dollars, but your money grows tax-free, and withdrawals in retirement are also tax-free. This makes Roth accounts incredibly valuable for long-term planning.

Contribution & Income Rules

Roth IRAs come with their own annual contribution limits and income restrictions. High-income earners often find themselves phased out of direct Roth eligibility, but there’s a solution: the backdoor Roth.

The Backdoor Roth IRA Strategy

If your income is too high for a direct Roth contribution, you can use the backdoor Roth strategy:

  1. Contribute after-tax dollars into a Traditional IRA.

  2. Convert those funds into a Roth IRA.

This effectively sidesteps the income restrictions.

Caution: If you already have money in a Traditional IRA, SEP IRA, or SIMPLE IRA, the conversion could trigger unexpected taxes due to the pro-rata rule. Work with a professional before making the move.

The Mega Backdoor Roth: Supersizing Your Roth

For those who want to go beyond traditional Roth IRAs, the mega backdoor Roth may be an option.

This strategy involves making after-tax contributions inside your 401k and then converting them into Roth dollars, either within the plan or through a rollover.

Not every 401k allows this, so check your plan’s rules. If it’s available, it can dramatically increase how much money you can shift into tax-free Roth savings.

Taxable Brokerage Accounts

After you’ve fully leveraged your 401k and Roth options, a taxable brokerage account is often the best next step.

Why It’s Valuable

  • No contribution limits: You can invest as much as you want.

  • Investment flexibility: Stocks, ETFs, mutual funds, options, and more.

  • Liquidity: No early withdrawal penalties.

  • Bridge to early retirement: Money is accessible well before traditional retirement age.

Tax Considerations

  • Gains on investments held less than a year are taxed at regular income rates.

  • Gains on investments held longer than a year qualify for long-term capital gains rates.

A taxable brokerage account provides unmatched flexibility and can complement your retirement accounts beautifully.

Real Estate: Diversifying Beyond the Market

Once your 401k is maxed out, real estate becomes an attractive alternative for many investors.

Options include:

  • Rental properties for steady cash flow

  • House flipping projects

  • REITs (real estate investment trusts)

  • Syndications or real estate funds

Real estate adds diversification, offers potential tax benefits, and gives you a tangible asset. However, it also requires active management and carries risks like vacancies and market downturns.

Cryptocurrency: A Modern Diversifier

For investors who are looking for ways to expand beyond traditional markets, cryptocurrency can be an exciting and innovative option.

Bitcoin, often called “digital gold,” has established itself as a legitimate asset class over the past decade. It offers a way to diversify away from traditional stocks and bonds, while also providing exposure to a technology that’s reshaping global finance. Many investors see it not just as a speculative play, but as a long-term hedge against inflation and currency debasement.

Why Crypto Appeals to Investors

  • Decentralization: Unlike traditional assets, cryptocurrencies operate outside the control of central banks or governments.

  • Scarcity: Bitcoin has a fixed supply, which creates a built-in scarcity similar to precious metals.

  • Accessibility: Crypto markets operate 24/7, offering flexibility that traditional exchanges don’t.

  • Innovation: Beyond Bitcoin, blockchain technology is driving new opportunities in decentralized finance (DeFi), tokenization, and smart contracts.

Tax & Portfolio Considerations

Crypto is treated as property for tax purposes, which means gains are subject to capital gains rules. Like any investment, it comes with volatility—but that volatility is also what creates potential for outsized returns. For many high-income earners, allocating even a small portion of their portfolio to crypto can provide diversification and long-term upside.

In other words, crypto isn’t just a speculative side bet, it can be a strategic addition to a modern wealth-building plan.

Insurance Products: A Niche Option

I’ve talked at length about how insurance is not an investment; however, life insurance policies that build cash value, such as whole life or universal life, can sometimes be used as investment vehicles after your 401k is maxed out.

Pros

  • Cash value grows tax-deferred

  • Loans can be taken tax-free

  • Provides death benefit protection

Cons

  • Higher costs and fees

  • Complexity and potential restrictions

  • Usually only makes sense for very high-income earners in specific situations

For most people, insurance shouldn’t be the first place you look, but it may be worth exploring with professional guidance if you’ve exhausted other options.

Tax Efficiency: Today vs. Tomorrow

When thinking about where to invest after your 401k is maxed out, it helps to balance two tax goals:

  1. Reducing taxes today through pre-tax contributions.

  2. Reducing taxes tomorrow by building tax-free money in Roth accounts.

Most investors benefit from having a mix of tax-deferred, tax-free, and taxable accounts, giving them flexibility no matter what future tax policy looks like.

Suggested Order of Operations

If you’ve maxed out your 401k and are wondering where to go next, here’s a general roadmap many investors follow:

  1. Contribute enough to your 401k to get the full employer match.

  2. Max out your 401k contributions.

  3. Fund a Roth IRA (or use the backdoor Roth if necessary).

  4. Explore the mega backdoor Roth if your plan allows.

  5. Open and invest in a taxable brokerage account.

  6. Add real estate, Bitcoin, or other alternative investments.

  7. Consider insurance-based strategies only if, and only if,  they fit your situation.

Final Thoughts

Hitting the point where you’ve maxed out your 401k is an incredible financial milestone. It means you’re saving aggressively and building a solid foundation for retirement. But the journey doesn’t end there. From Roth accounts to brokerage accounts, real estate, and beyond, there are countless ways to keep your money working for you.

The best approach depends on your goals, income, and risk tolerance. For many, working with a financial advisor can help align these options into a personalized plan.

Next Steps

At Bonfire Financial, we specialize in helping high-income earners and diligent savers make the most of every opportunity. If you’ve maxed out your 401k and are wondering what to do next, we’d love to help you create a clear plan for building wealth beyond the limits.

👉 Book a meeting with us today to map out your next steps.

What to Do with an Old (or Forgotten) 401k

Posted on by Brian Colvert

Why Old 401ks Matter

If you’ve ever switched jobs, there’s a good chance you’ve left behind an old 401k. In fact, studies estimate there are millions of forgotten retirement accounts in the U.S., holding billions of dollars in unclaimed savings.

Whether you left $500 in a plan years ago or have tens of thousands tied up with a former employer, those accounts matter more than you might realize. An old 401k could be costing you money in unnecessary fees, or worse,  you might lose track of it entirely.

Today we will walk you through everything you need to know about handling an old 401k. From your rollover options, to how to track down a forgotten plan, to avoiding common mistakes — you’ll come away knowing exactly what to do to make sure every dollar you earned is working toward your future.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music 

What Happens to Your Old 401k When You Leave a Job

When you leave an employer, your 401k doesn’t vanish,  but it doesn’t automatically follow you either. Depending on your balance, several things can happen:

  • Balances over $5,000: Most employers allow you to keep the money in the plan if you choose.

  • Balances between $1,000–$5,000: Some companies may automatically roll your account into an IRA in your name, but you may not realize it.

  • Balances under $1,000: Employers may cash you out, sending a check (minus taxes and penalties if you’re under age 59½).

If you don’t take action, your old 401k can become “out of sight, out of mind.” That’s where problems start.

The Risks of Leaving an Old 401k Behind

Why not just leave your old 401k where it is? After all, it’s still invested, right? While that’s true, there are downsides:

  1. Losing track of accounts – Multiple jobs often mean multiple accounts. Over time, it’s easy to forget login info or overlook one entirely.

  2. Higher fees – Old employer plans may have more expensive mutual funds or administrative costs compared to an IRA.

  3. Limited investment options – Most 401ks restrict you to a small menu of mutual funds, while IRAs offer far broader choices (ETFs, individual stocks, etc.).

  4. Difficulty managing a unified strategy – Spreading your retirement savings across several accounts makes it harder to stay on top of allocation, rebalancing, and overall performance.

Bottom line: consolidating old 401ks can simplify your life, reduce costs, and help your money grow more effectively.

Your Options for an Old 401k

When you leave an employer, you generally have four choices:

1. Leave the Money in the Old 401k

  • Pros: Simple, no immediate action required. You might benefit from institutional pricing on mutual funds.

  • Cons: Easy to forget about, limited investment choices, and fees may be higher.

2. Roll It Into Your New Employer’s 401k

  • Pros: Keeps all your workplace retirement savings in one account, making it easier to track. No tax consequences for direct rollovers.

  • Cons: You’re limited to the new employer’s fund lineup. Some plans have clunky rollover processes.

3. Roll It Into an IRA

  • Pros: Maximum control and flexibility. You can invest in almost anything (ETFs, individual stocks, bonds). Many custodians now charge $0 commissions.

  • Cons: May lose access to special institutional share classes of mutual funds. Requires you to manage the account yourself or work with an advisor.

4. Cash Out the 401k (Least Recommended)

  • Pros: You get the money immediately.

  • Cons: Taxes plus a 10% penalty if you’re under age 59½. You risk derailing your long-term retirement savings.

How to Track Down a Forgotten 401k

Maybe you lost track of an old account years ago. Don’t worry,  there are ways to find it.

Start with the Employer

If you remember the company, call their HR or benefits department. They can direct you to the plan’s recordkeeper.

Use the Department of Labor’s Form 5500 Search

Employers file this form for their retirement plans. Search by company name to see details on who administers the plan.

Contact Major 401k Providers

Firms like Fidelity, Vanguard, Empower, and Nationwide handle a huge portion of retirement plans. A quick call with your Social Security number can often locate accounts.

Check the National Registry of Unclaimed Retirement Benefits

This online database lets you search for old accounts using your Social Security number. While legitimate, always be cautious and make sure you’re on the official site.

The Cost Factor: Fees and Share Classes

One overlooked detail about old 401ks is share class pricing.

Large employer plans often get access to cheaper mutual fund share classes. But when you roll money into an IRA, you may move into a more expensive version of the same fund. On the flip side, IRAs allow access to ETFs and individual stocks, which can often be cheaper overall.

Action step: Always compare expense ratios and fund availability before deciding whether to keep money in an old 401k or roll it out.

Why Consolidating Accounts Matters

Consolidating your old 401ks into fewer accounts isn’t just about neatness,  it’s about strategy.

  • Easier to monitor performance.

  • One investment strategy instead of several scattered ones.

  • Simpler rebalancing.

  • Lower risk of losing track.

Think of it like cleaning out a closet. You might find things you forgot you owned,  and you’ll feel more in control once everything is in one place.

FAQs About Old 401ks

Q: Can I have multiple old 401ks?
Yes,  and many people do. Each employer you’ve worked for likely had its own plan.

Q: Will my old 401k keep growing if I leave it alone?
Yes, it stays invested. But without oversight, you risk misallocation and higher fees.

Q: What if my old employer went out of business?
Your account still exists. Use the Department of Labor’s Form 5500 search to track down the recordkeeper.

Q: Can my old 401k be lost forever?
Not exactly. Even if you lose track, there are ways to recover it, but it may take effort.

Q: Should I always roll into an IRA?
Not always. If your new employer has a great low-cost plan, rolling into it might be easier. Compare before deciding.

Conclusion: Don’t Let Your Old 401k Collect Dust

Your old 401k is your money. Whether it’s a few hundred dollars or a few hundred thousand, every dollar counts toward your retirement future. By consolidating accounts, lowering fees, and keeping everything organized, you can maximize growth and reduce headaches.

The key is to be proactive. Don’t wait until years later when you can’t remember the login or whether you even had a plan. Track it down now, roll it over wisely, and keep your retirement savings working hard for you.

Ready to Take Control of Your Old 401k?

Don’t let your hard-earned savings sit forgotten with a past employer. Whether you need help tracking down an old 401k, deciding between a rollover or IRA, or building a bigger retirement strategy, we’re here to help.

👉 Book a meeting with us  and let’s make sure every dollar you’ve earned is working toward your future.

The Best Age to Retire? It’s Not What You Think

Posted on by Brian Colvert

Retirement is one of the most talked-about financial milestones, yet it’s also one of the most misunderstood. People often ask financial advisors, “What’s the best age to retire?” hoping for a magic number that unlocks the perfect blend of security and freedom.

But here’s the truth: there is no universal age that works for everyone. Retirement isn’t about hitting 65 or 67, it’s about when you can afford to stop relying on a paycheck, maintain your lifestyle, and actually enjoy what you’ve worked so hard for.

Today we’ll explore how the idea of retirement came to be, why the age of 65 became such a cultural marker, and most importantly, how to figure out the right retirement age for you.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music 

Why Do We Think the Best Age to Retire Is 65?

The idea of retirement as we know it is relatively new. For most of human history, people simply worked until they couldn’t anymore. Families, not pensions or social safety nets, provided care for older adults.

It wasn’t until the late 1800s that pensions started to appear, primarily for government and military workers. Then in 1935, the U.S. government introduced Social Security, setting 65 as the retirement age. At the time, life expectancy was only about 61 years. In other words, most people didn’t actually live long enough to collect benefits.

Later, in 1978, the Revenue Act introduced the 401(k), a retirement account designed to help individuals save for life after work. This shift from pensions (defined benefit plans) to 401(k)s (defined contribution plans) changed the retirement landscape completely.

So why is 65 still considered the “best age to retire”? Because it’s tied to these government programs, not to your personal financial situation or lifestyle goals.

The Problem with Chasing a Number

Let’s pause and ask: if retirement is about freedom, why should it be limited by an arbitrary number like 65?

Here’s the reality:

  • People live much longer now. Living into your 90s or even 100s is increasingly common. Retiring at 65 could mean funding 30+ years of living expenses.

  • Expenses don’t magically shrink. The myth that retirees spend less is largely untrue. In fact, many people spend more in the first decade of retirement on travel, hobbies, and family experiences.

  • Identity and purpose matter. Many people enjoy working well into their 70s, not because they need to financially, but because it gives them purpose and connection.

When people ask, “What’s the best age to retire?” they’re often really asking: When will I have enough money to retire comfortably?

Defining Retirement: It’s About Freedom, Not Age

One of the biggest mindset shifts to make is this: retirement doesn’t mean quitting work forever.

True retirement is about financial independence, having enough savings and investments that you could stop working tomorrow without changing your lifestyle.

That doesn’t mean you have to stop working. Many financially independent people continue working into their later years because they love what they do. Warren Buffett, for example, could have retired decades ago, but he’s still running Berkshire Hathaway at 90+.

For others, retirement means shifting gears, consulting, starting a passion project, or working part-time.

So instead of asking “What’s the best age to retire?” try asking:

  • Do I have enough money saved to cover my expenses indefinitely?

  • Am I emotionally ready to leave my career identity behind?

  • What will I do with my time if I stop working?

The Financial Side: Knowing When You Have “Enough”

The book The Psychology of Money by Morgan Housel talks about a powerful concept: knowing when enough is enough.

In the context of retirement, this means:

  • Stop comparing yourself to others. There will always be someone with a nicer house, bigger portfolio, or flashier retirement lifestyle.

  • Define what happiness and satisfaction look like for you. Maybe it’s traveling, maybe it’s staying close to family, maybe it’s finally focusing on hobbies.

  • Build your financial plan around that lifestyle, not around an arbitrary age.

Here are the key financial indicators that help determine your retirement readiness:

1. Your Savings and Investments

Do you have enough in your 401(k), IRA, brokerage accounts, and real estate to cover your annual living expenses for 25–30 years or more?

2. Income Streams

Are you relying solely on Social Security, or do you also have pensions, rental income, dividends, or business income? Multiple streams make retirement more secure.

3. Healthcare Costs

Medicare eligibility starts at 65, but what if you want to retire earlier? Private health insurance can be costly, so this needs to be factored in.

4. Lifestyle Expenses

Be realistic. Retirement doesn’t mean your costs disappear. Housing, insurance, taxes, travel, and hobbies all add up.

5. Inflation

Even modest inflation eats away at your purchasing power over decades. A gallon of milk that costs $4 today could cost $8 or more by the time you’re 85.

The Three Questions That Really Determine the Best Age to Retire

Instead of circling 65 on your calendar, consider these three questions:

  1. When do you want to retire? Some people dream of early retirement in their 50s; others find joy in working into their 70s.

  2. When can you afford to retire? This is where financial planning comes in. Can your savings generate enough income to sustain you?

  3. What will you do in retirement? Retiring without purpose often leads to boredom and even depression. Planning for your time is just as important as planning for your money.

When you’ve checked all three boxes, that’s your personal best age to retire.

Common Retirement Myths – Busted

Myth #1: You’ll Spend Less in Retirement
Reality: Most retirees spend the same, or even more, especially in the first 10 years.

Myth #2: You Should Work Until 65
Reality: 65 is an outdated number tied to Social Security, not your readiness.

Myth #3: Retirement Means Doing Nothing
Reality: Many retirees start businesses, volunteer, travel, or pursue passions.

Myth #4: Social Security Will Cover Everything
Reality: Social Security replaces only a portion of income. Personal savings are essential.

Early Retirement: Is It Possible?

Yes, it’s possible to retire in your 40s or 50s, but it takes careful planning and discipline. Movements like FIRE (Financial Independence, Retire Early) show that with aggressive saving and investing, some people can leave the workforce decades before the traditional retirement age.

But early retirement also comes with challenges:

  • Higher healthcare costs until Medicare kicks in.

  • Longer retirement period to fund.

  • Potential boredom or loss of identity if you’re not prepared.

If early retirement appeals to you, it’s even more critical to define your lifestyle goals and financial plan clearly.

Longevity and the New Shape of Life

Think of life as three big phases:

  1. Learning and Growing (0–30s)

  2. Working and Building (30s–60s)

  3. Retirement and Freedom (60s–100+)

For many, retirement now makes up one-third of life. That’s a long time to fill with meaning, purpose, and financial stability.

The best age to retire is when you can confidently step into that third phase without fear of running out of money, or out of things to do.

So, What’s the Best Age to Retire?

Here’s the conclusion: the best age to retire isn’t 65, or 67, or 70, it’s the age when you have enough. Enough financial security, enough clarity about your lifestyle, and enough purpose to make the transition worthwhile.

That might be 55 for one person, 75 for another. For some, it may mean never fully retiring but instead shifting into work they love at a slower pace.

Retirement isn’t a date on the calendar. It’s a personal decision based on numbers, values, and vision.

Key Takeaways

  • The traditional retirement age of 65 is rooted in history, not in your personal needs.

  • Retirement is about financial independence, not quitting work.

  • You’ll likely spend as much or more in retirement as you do now.

  • Longevity means retirement could last 30 years or more; planning is critical.

  • The best age to retire is the age when you can afford to sustain your desired lifestyle.

Next Steps

👉 Ready to figure out your personal best age to retire? At Bonfire Financial, we help individuals and families design retirement plans that are realistic, customized, and confidence-building. Schedule a call with us today to see how we can help you reach financial independence and make retirement your best chapter yet.

The Cash Balance Plan Advantage: Maximize Savings, Minimize Taxes

Posted on by Brian Colvert

For many professionals, business owners, and high earners, saving for retirement isn’t about lack of discipline. You already have strong income and cash flow. You may be consistently maxing out your 401(k), setting aside money in brokerage accounts, and even investing in real estate or other alternatives.

But here’s the problem: the standard retirement tools have strict contribution limits. A 401(k) may feel like a strong option, but even when you max it out, adding in profit-sharing and catch-up contributions, you’ll likely cap out under $80,000 a year. That’s a good number, but not enough to truly accelerate your savings if you want to catch up late or shelter more income from taxes.

Enter the Cash Balance Plan.

Read on,  and listen in to this episode,  to learn how it works, why it’s so powerful, and whether it could be the right move for your retirement strategy.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music 

What Is a Cash Balance Plan?

A Cash Balance Plan is a type of hybrid defined benefit plan. That phrase may sound complicated, but here’s the essence: it’s a retirement plan that blends elements of a traditional pension with the flexibility of a 401(k).

Unlike the pensions of decades past,  where companies like Ford or GM promised lifetime income for employees, a Cash Balance Plan is defined by the annual contributions you (or your company) make. Those contributions grow tax-deferred, and when you retire, you can roll the balance into an IRA or take it as an annuity.

Think of it as an advanced retirement savings tool for people who want to put away much more than a 401(k) allows.

Why High Earners and Business Owners Should Pay Attention

Here’s where Cash Balance Plans shine: contribution limits are much higher than 401(k)s. Depending on your age, income, and plan design, you could contribute $100,000 to $300,000 or more per year.

For a business owner with strong cash flow, that means:

  • Massive tax savings. Every dollar you put into the plan reduces your taxable income.

  • Accelerated retirement savings. If you’re starting late or want to ensure you maintain your lifestyle, this lets you catch up quickly.

  • Strategic employee benefits. You can structure the plan to benefit your team as well, while still prioritizing your retirement goals.

In other words, if you’ve ever looked at your 401(k) max and thought, “That’s just not enough,” a Cash Balance Plan may be exactly what you need.

Comparing 401(k)s and Cash Balance Plans

Most people are familiar with 401(k) rules, so let’s put the two side by side:

  • 401(k) contributions (2025 limits – SEE CURRENT LIMITS HERE):

    • $23,000 under age 50

    • $31,000 age 50+ with catch-up

    • $34,750 with SECURE 2.0 special catch-up (ages 60–63)

    • Even with employer contributions and profit sharing, totals usually cap under $76,500–$90,000.

  • Cash Balance Plan contributions:

    • Vary by age and plan design

    • Often allow $100,000–$300,000+ annually

    • Maximum lifetime accumulation of around $3.5 million

The difference is striking. With a 401(k), you’re building steadily. With a Cash Balance Plan, you’re pouring fuel on the fire.

How Contributions Work

Cash Balance Plans are age-sensitive. The older you are, the more you can contribute. That’s because the actuarial tables assume you have fewer years until retirement, so the annual contribution needed to reach your benefit goal is higher.

For example:

  • A 45-year-old business owner might be able to contribute $100,000 annually.

  • A 55-year-old might be eligible to contribute $250,000 annually.

This makes them especially powerful for late savers,  people who may have built their business first and are now catching up on retirement.

The Concrete Analogy

One way to think about Cash Balance Plans is like pouring concrete. Before the pour, you can shape the mold any way you like: round, square, detailed, or simple. There’s flexibility in the design.

But once the concrete sets, it’s fixed. A Cash Balance Plan is similar: during design, you have flexibility to customize contributions, employer matches, and employee benefits. But once the plan is established, you’re expected to stick with it for at least three to five years.

This ensures the plan is legitimate and not just a tax dodge.

Investment Considerations

Here’s where Cash Balance Plans differ from 401(k)s:

  • 401(k): Typically invested in a mix of stocks, bonds, and funds. Growth can vary widely year to year.

  • Cash Balance Plan: Generally invested more conservatively, targeting 3–5% returns.

Why the difference? Because each year, the plan must meet actuarial requirements. If your investments outperform too much, your ability to contribute in future years may actually shrink. Conservative investments keep things predictable and maximize the amount you can put in over time.

Think of your 401(k) as your “growth” bucket, while your Cash Balance Plan is your “storage” bucket, a place to consistently pack away large sums without volatility getting in the way.

Tax Efficiency in Action

Imagine a 55-year-old business owner earning $500,000 a year. Without advanced planning, they might pay well into six figures in taxes annually.

With a Cash Balance Plan, they could:

  • Contribute $250,000 to the plan.

  • Reduce their taxable income significantly.

  • Invest contributions conservatively until retirement.

  • Roll the plan balance into an IRA at retirement, unlocking full investment flexibility.

Instead of writing a massive check to the IRS, they’re writing it to their own retirement future.

What About Employees?

If you own a business with employees, you’ll need to include them in the plan. That might sound daunting, but the math often works in your favor.

For example:

  • You contribute $200,000 for yourself.

  • You contribute $5,000 spread across several employees.

Your employees gain a great benefit, but your retirement nest egg still gets the bulk of the funding. For partnerships,  law firms, medical practices, etc. Cash Balance Plans can be structured to benefit multiple partners significantly while still meeting employee requirements.

The Pros and Cons of a Cash Balance Plan

Like any tool, a Cash Balance Plan isn’t perfect for everyone, there are pros and cons.

Pros:

  • Huge contribution limits (up to $300K+ annually).

  • Significant tax savings.

  • Ideal for late savers or high earners.

  • Customizable design.

  • Can be paired with a 401(k) for maximum savings.

Cons:

  • Requires consistent contributions (3–5 years recommended).

  • More complex administration and actuarial requirements.

  • Investments are more conservative.

  • Costs include plan setup, annual filings, and contributions for employees.

Who Should Consider a Cash Balance Plan?

A Cash Balance Plan might be right for you if:

  • You own a business or are a partner in a firm.

  • You have a strong, predictable cash flow.

  • You’re already maxing out your 401(k) and other savings.

  • You want to significantly reduce taxable income.

  • You’re in your 40s, 50s, or 60s and want to catch up fast.

It may not be right if:

  • Your income or cash flow is inconsistent.

  • You’re not ready to commit to multi-year contributions.

  • You prefer aggressive investment strategies within the plan itself.

Real-World Examples

  • The Late Saver Business Owner
    A 52-year-old physician realizes they’ve only saved $800,000 for retirement. With a Cash Balance Plan, they can contribute $200,000 annually for the next 10 years, building a $3 million nest egg while slashing annual taxes.

  • The Law Firm Partners
    Four partners in their late 40s set up a Cash Balance Plan alongside their 401(k). Each is able to contribute $150,000 annually, while still offering employees a fair benefit. Over 15 years, they each build multi-million-dollar retirement accounts.

  • The Solo Entrepreneur
    A 55-year-old business consultant with no employees sets up a plan to contribute $250,000 annually. After 7 years, they’ve set aside $1.75 million tax-deferred, all while lowering taxable income during peak earning years.

Flexibility at Retirement

When you retire, your Cash Balance Plan balance doesn’t just sit there. You have choices:

  • Roll it into an IRA and invest however you choose.

  • Convert it into an annuity for guaranteed income.

This flexibility makes it a powerful complement to other retirement accounts.

Bottom Line

If you’re a high earner, small business owner, or professional with strong cash flow, a Cash Balance Plan may be one of the most effective ways to maximize savings and minimize taxes.

It’s not right for everyone, but for the right person, it can mean the difference between just scraping by in retirement and maintaining the lifestyle you’ve worked hard to build.

At Bonfire Financial, we help design and implement Cash Balance Plans tailored to your business, income, and retirement goals. We’ll walk you through the calculations, structure, and long-term strategy so you know exactly what’s possible.

Next Steps

If you’d like to explore whether a Cash Balance Plan could work for you:

👉 Schedule a call with us today

Together, we’ll run the numbers and design a strategy that helps you save smarter, reduce taxes, and secure the retirement you deserve.

Retirement Planning Mistakes: Don’t Forget These Hidden Costs!

Posted on by Brian Colvert

Retirement planning mistakes are often not about splurging on big vacations or buying luxury cars. The real danger usually lies in the hidden costs in retirement that slowly drain savings. Many retirees believe they have accounted for everything, yet some of the most common overlooked expenses, like healthcare, housing upkeep, and inflation, can quietly derail even the most carefully built plan.

The good news is that these mistakes can be avoided. By understanding where retirees most often miscalculate, and by recognizing the hidden costs in retirement, you can design a plan that is more resilient and less vulnerable to surprises. Today, we will break down the most common overlooked expenses in retirement, why they matter, and how to plan for them. If you want your retirement plan to last as long as you do, this is the guide you cannot afford to miss.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

Why Retirement Planning Mistakes Are So Common

When you are still working, surprise expenses are easier to manage. A paycheck is coming in, and you can save more or adjust spending temporarily. In retirement, income is typically fixed. You rely on Social Security, pensions, and investment withdrawals. That means every unexpected bil, whether it is a new roof, a healthcare emergency, or long-term care, directly reduces your nest egg.

One of the biggest retirement planning mistakes is treating your budget as if it will never change. In reality, costs fluctuate, and inflation guarantees that what seems sufficient today may not be enough ten years from now. Building flexibility into your plan is the best way to avoid the hidden costs in retirement from catching you off guard.

Retirement Planning Mistake #1: Underestimating Healthcare Costs

Healthcare is the most underestimated expense in retirement. Many assume Medicare will cover nearly everything, but that is a costly mistake. Retirees still face monthly Medicare premiums, supplemental insurance costs, copays, and deductibles. On top of that, Medicare does not cover dental, vision, or hearing aids, three areas that become more important with age.

Ignoring long-term care is another common mistake. Assisted living, memory care, or in-home nursing support can cost thousands of dollars per month. Couples are especially vulnerable because one spouse’s healthcare needs can quickly deplete assets and leave the other with fewer resources. Planning for these hidden costs in retirement is critical, whether through savings, long-term care insurance, or a hybrid policy.

The Solution:

  • Budget realistically for Medicare premiums, Medigap or Advantage plans, and out-of-pocket expenses.

  • Create a separate “healthcare fund” within your retirement accounts dedicated to medical costs.

  • Explore long-term care insurance or hybrid life policies with LTC riders to protect against catastrophic expenses.

  • Consider Health Savings Accounts (HSAs) while still working, since funds can grow tax-free and be used for qualified medical expenses in retirement.

Retirement Planning Mistake #2: Forgetting About Cars

Many retirees assume that because their car is paid off, it will not be a concern. But retirement can last 20 to 30 years, and vehicles do not last that long. Repairs, insurance, and eventual replacements are inevitable. This is a retirement planning mistake that sneaks up on many households. Including a vehicle replacement fund in your budget ensures that transportation needs do not become one of the hidden costs in retirement that strain your finances.

The Solution:

  • Build vehicle replacement into your retirement plan. For example, expect to purchase a new or used car every 8–12 years.

  • Set aside a specific sinking fund for future vehicle expenses so you are not forced to withdraw large sums unexpectedly.

  • Shop insurance regularly to keep premiums in check, and consider usage-based policies if you drive less in retirement.

Retirement Planning Mistake #3: Treating Housing as “Set and Forget”

Owning your home outright provides stability, but it does not eliminate housing costs. Property taxes, insurance, and regular maintenance remain significant. Roofs, furnaces, and appliances will eventually need replacement. Another hidden cost in retirement is the myth of downsizing. Many believe they can sell a large home, buy a smaller one, and pocket the difference. In reality, retirees often move into smaller but newer or better-located homes, meaning little to no extra equity is gained. The mistake is assuming housing will be a source of retirement income, when in fact it often just shifts your expenses.

The Solution:

  • Plan for 1–3% of your home’s value per year for maintenance and repairs.

  • Consider a home equity line of credit (HELOC) as a backup source for unexpected repairs, while being cautious about overuse.

  • If downsizing, be realistic: research comparable neighborhoods and understand that “smaller” often does not mean “cheaper.”

Retirement Planning Mistake #4: Ignoring Inflation

Inflation quietly erodes buying power. A $10,000 monthly budget today may require $13,500 in ten years at a 3% inflation rate. At 5%, that same budget could reach $16,000. Many retirement plans fail to fully account for inflation, creating future shortfalls. The hidden cost in retirement here is not just rising prices, but the compounding effect year after year. A realistic plan assumes higher future expenses and avoids the mistake of assuming costs will remain stable.

The Solution:

  • Use conservative inflation estimates (3–4%) in your retirement projections instead of assuming historical lows.

  • Keep a portion of your portfolio invested in growth assets (such as equities) to outpace inflation over the long term.

  • Revisit and update your retirement plan regularly to adjust for real-world inflation trends.

Retirement Planning Mistake #5: Overlooking Lifestyle Spending

Spending patterns in retirement are rarely flat. Holidays, family visits, vacations, and hobbies create spikes in expenses. A mistake many retirees make is expecting their spending to remain consistent. In reality, expenses ebb and flow, and these fluctuations are one of the hidden costs in retirement that can quickly eat into savings if not anticipated. A flexible withdrawal strategy that accounts for seasonal highs and lows is essential.

The Solution:

  • Build flexibility into your withdrawal strategy, allowing for “seasonal spikes” in spending.

  • Use a bucket strategy: short-term needs in cash, mid-term in bonds, and long-term growth in equities.

  • Track spending during the first year of retirement to get a realistic picture of your lifestyle costs.

  • Set aside a discretionary “fun fund” for travel, hobbies, or gifts so these expenses do not disrupt your core retirement budget.

The Importance of Stress-Testing Your Retirement Plan

Perhaps the most overlooked retirement planning mistake is not stress-testing your plan against worst-case scenarios. What happens if inflation surges? What if healthcare costs reach five figures per month? What if your home requires major repairs and a new car at the same time? Running these scenarios may be uncomfortable, but it reveals the true resilience of your retirement plan. If your plan can handle the hidden costs in retirement, you are far more likely to enjoy peace of mind.

Avoiding Retirement Planning Mistakes: Key Takeaways

  1. Do not underestimate healthcare and long-term care expenses.

  2. Expect to replace cars, even if yours is paid off now.

  3. Recognize that housing requires ongoing costs and downsizing rarely frees up much cash.

  4. Always factor in inflation, even when it feels low.

  5. Account for seasonal lifestyle spending, not just averages.

  6. Stress-test your plan to identify weak spots before they become real problems.

Final Thoughts

The biggest retirement planning mistake is assuming life will go exactly as expected. The reality is that hidden costs in retirement are inevitable, whether from healthcare, housing, inflation, or lifestyle shifts. By identifying these risks early and building flexibility into your plan, you can avoid surprises and protect your hard-earned savings. Retirement should be about freedom, not financial stress. With the right preparation, you can enjoy the lifestyle you worked for while staying confident that your money will last as long as you do.

Next Steps

You do not have to plan for retirement alone. Our team can help you uncover the hidden costs in retirement, stress-test your plan, and create a strategy that gives you confidence about the future. Schedule a call with us today to talk through your goals and see how we can help you build a retirement plan that lasts.

How Portfolio Rebalancing Can Help You Stay on Track for Retirement

Posted on by Brian Colvert

Rebalancing isn’t the most exciting part of investing. It’s not something you’ll see on the news ticker or in a flashy headline. Yet for people preparing for or living in retirement, it may be one of the most important strategies you can use to protect your wealth.

At its core, rebalancing is about discipline. Markets move in unpredictable ways, and over time, those swings shift the mix of investments in your portfolio. Without even realizing it, you may be taking on more risk than you intended or missing out on growth opportunities. Rebalancing realigns your investments with your goals, helping you stay the course through both bull and bear markets.

Today, we’ll break down what rebalancing is, why it matters, and how to put it into practice. You’ll see how it can make a meaningful difference in reaching your long-term retirement goals.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

What Is Portfolio Rebalancing?

Portfolio rebalancing is the process of realigning the weightings of your investments back to your target allocation.

Let’s say you’ve decided that a 50/50 mix of stocks and bonds is the right balance for you. Over time, the stock market rises, and your portfolio drifts to 60% stocks and 40% bonds. That might feel good in the moment, your account balance is up, but you’re now taking on more risk than you originally planned.

Rebalancing means selling a portion of your stocks (while they’re high) and shifting that money back into bonds, restoring your portfolio to the original 50/50 balance.

On the flip side, if the stock market falls and your portfolio drifts to 40% stocks and 60% bonds, rebalancing means selling some of the bonds and buying stocks while they’re low. This ensures you’re not underexposed to future growth when the market eventually recovers.

Equities vs. Fixed Income: The Two Buckets

To understand rebalancing, it helps to break investing down into two simple buckets:

  • Equities (stocks): “Risk-on” investments that represent ownership in companies. You’re aiming for growth through capital appreciation and dividends.

  • Fixed Income (bonds, CDs, treasuries): “Risk-off” investments that provide more predictable income. Think of it like a mortgage where you are the bank: you lend money to a government or corporation, and they promise to pay you back with interest.

Stocks typically offer higher potential returns, but with higher volatility. Bonds are generally steadier, though still subject to risks like interest rate changes.

Your personal mix of these two buckets is your asset allocation, the foundation of your investment strategy.

Diversification and Asset Allocation

Diversification is one of the cornerstones of preserving wealth. Instead of putting all your eggs in one basket, you spread your money across different asset classes so no single investment can sink your plan.

Asset allocation, how much you hold in stocks versus bonds, is the most important part of diversification. But here’s the key: there is no one-size-fits-all rule.

  • The old “age minus 100” rule for bond allocation doesn’t capture the full picture.

  • Two investors at the same age can have very different goals, risk tolerances, and time horizons.

  • Asset allocation is more art than science, it requires tailoring to your situation.

A skilled advisor helps you determine your target allocation by balancing your need for growth, your comfort with risk, and your long-term retirement goals.

How Portfolios Drift Over Time

Here’s where rebalancing comes into play: markets move, and with them, so does your portfolio.

Bull markets: Stocks rise faster than bonds. A 50/50 portfolio can quickly drift to 60/40 or 70/30. Without adjusting, you’re carrying more risk than you intended.

Bear markets: Stocks fall faster than bonds. That same 50/50 portfolio could shrink to 40/60. Without rebalancing, you may miss the rebound when the market recovers.

This drift happens quietly. You don’t get an alert from your custodian that says, “Congratulations, you’re now riskier than you wanted to be!” Yet the impact is real.

Why Rebalancing Is So Important

Rebalancing matters because it keeps your investments aligned with your risk tolerance and your plan. Without it, you might find yourself:

  • Taking on more risk than you can stomach in a downturn.

  • Missing out on growth opportunities when markets recover.

  • Falling into emotional traps like “letting it ride” when things are good or “selling everything” when things are bad.

Rebalancing forces you to buy low and sell high, even when your emotions are telling you to do the opposite.

Lessons from 2008

During the Great Recession, markets fell more than 50%. Investors who were overweight in equities, often without realizing it, saw their portfolios drop more than expected. Many panicked, sold out at the bottom, and missed the recovery that followed.

Investors who stuck with their plan and rebalanced were positioned to capture that recovery, often coming out stronger in the long run.

The Psychology Behind Rebalancing

Investing is as much about behavior as it is about numbers.

Every investor has what we call a capitulation point, the point where fear takes over and they say, “Get me out, I can’t take this anymore.” That’s usually the worst possible time to sell.

Rebalancing helps prevent reaching that point by keeping your portfolio in line with your comfort zone. It creates discipline in an area where emotions run high.

And it reinforces one of the most important investing truths: time in the market is more important than timing the market.

Practical Ways to Rebalance

There are a few different ways to approach rebalancing:

  • Calendar-based: Review once a year (often at year-end for tax planning). Adjust if allocations are significantly out of line.

  • Threshold-based: Only rebalance when allocations drift more than 5–10% from target.

  • Automated: Many 401(k)s and IRAs allow you to set automatic annual rebalancing. This “set it and forget it” method helps remove emotion.

For most investors, once a year is plenty. Rebalancing too often (monthly or quarterly) can generate unnecessary costs and prevent your portfolio from capturing natural market momentum.

Common Mistakes to Avoid

  1. Over-rebalancing
    Moving things around too often just for the sake of it can create extra taxes and fees.

  2. Ignoring changes in risk tolerance
    Your ideal allocation may shift as you near retirement or as your goals evolve. Rebalancing should align with your life, not just the markets.

  3. Relying on rules of thumb
    Cookie-cutter advice doesn’t work. A 65-year-old who plans to work part-time for 10 more years doesn’t need the same allocation as a 65-year-old who just retired.

Rebalancing in Action: Scenarios

  • Scenario 1: Bull Market Drift
    A 50/50 portfolio drifts to 65/35 after a strong market run. The investor rebalances back to 50/50, locking in gains and reducing exposure before a downturn.

  • Scenario 2: Bear Market Recovery
    A 60/40 portfolio drifts to 40/60 during a market drop. The investor sells bonds and buys stocks at low prices, setting the stage for a stronger recovery.

  • Scenario 3: Retirement Income Needs
    A retiree relying on bond income notices their stock allocation has crept higher. Rebalancing restores their comfort level, keeping income reliable.

Rebalancing as Part of the Bigger Picture

Rebalancing isn’t a one-off tactic; it’s part of a bigger strategy. It works best when tied to:

It’s not about reacting to headlines or chasing returns. It’s about staying consistent with the plan you’ve built for your future.

Conclusion

Rebalancing may not be glamorous, but it’s one of the smartest ways to stay in control of your wealth. It helps you manage risk, avoid emotional mistakes, and stay aligned with your long-term goals, especially in retirement, when stability matters most.

At Bonfire Financial, we believe disciplined strategies like rebalancing are key to giving our clients confidence through all market conditions.

Ready to make sure your portfolio is aligned with your goals?

Schedule a call with our team today. We’ll review your allocation, talk through your retirement plan, and help ensure you’re on track for long-term success.

Wills and Trusts: What You Need to Know to Pass On Your Wealth Wisely

Posted on by Brian Colvert

Wills and Trusts

Estate planning is one of those topics that almost every client eventually brings up. The most common question? Do I need a trust, or is a will good enough?

It seems like a straightforward choice, but the reality is more nuanced. The right decision depends on your goals, the type of assets you own, your state’s probate rules, and how much control and privacy you want when transferring wealth to your heirs.

Today we’ll walk through the differences between wills and trusts, the advantages and disadvantages of each, and how to decide what works best for your unique situation. Whether you’re just starting your estate planning journey or managing significant wealth, understanding these tools is essential to protecting your legacy.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

What Exactly Is a Will?

A will is a legal document that outlines how you want your assets distributed when you pass away. It can cover everything from financial accounts to personal items to naming guardians for children.

Key Features of a Will

• Cost-effective: Generally less expensive to create than a trust.
• Simple: Straightforward for people with uncomplicated estates.
• Flexible: Can be updated or rewritten as your circumstances change.

Limitations of a Will

• Probate required: A will must go through the probate process, which can be lengthy, public, and expensive depending on your state.
• Public record: Once filed, wills are accessible to the public, which means less privacy for your family.
• Limited control: A will can specify who gets what, but it doesn’t provide mechanisms to control how assets are used after distribution.

What Is a Trust?

A trust is a legal arrangement where you (the grantor) place assets into the trust, managed by a trustee, for the benefit of your chosen beneficiaries.

Key Features of a Trust

• Avoids probate: Assets in a trust typically bypass probate, speeding up distribution.
• Privacy: Unlike wills, trusts remain private documents.
• Control beyond the grave: Trusts allow you to set conditions, such as how and when heirs receive assets.
• Asset protection: Certain types of trusts can shield wealth from creditors and lawsuits.

Limitations of a Trust

• Cost: More expensive to establish and maintain than a will.
• Complexity: Requires ongoing administration and proper funding (transferring assets into the trust).
• Not always necessary: For those with simple estates, the benefits may not outweigh the costs.

Qualified vs Non-Qualified Accounts: Why It Matters

Before deciding on a will or trust, it’s important to understand the difference between qualified and non-qualified accounts.

Qualified accounts are retirement accounts like 401(k)s, IRAs, and Roth IRAs. These accounts already require you to name beneficiaries, which makes them function somewhat like a built-in estate plan. Upon death, they pass directly to your beneficiaries without probate.

Non-qualified accounts include brokerage accounts, joint accounts, partnerships, or business interests. These assets often require more planning, as they don’t automatically bypass probate.

This distinction matters because if most of your wealth is in qualified accounts, a will might suffice. But if you own significant non-qualified assets, a trust may be essential.

When a Will Is Likely Enough

For many people, a simple will paired with beneficiary designations on retirement accounts is sufficient. Situations where a will works well include:

• You own mostly qualified accounts (401(k), IRA, Roth IRA).
• You live in a state with a simple, inexpensive probate process.
• You don’t own complex assets like businesses or multiple properties.
• Your goal is straightforward distribution (for example, split equally between two children).

In these cases, a will is cost-effective, easy to create, and accomplishes the main goal of ensuring your wealth passes to your heirs.

When a Trust Makes More Sense

For high-net-worth families and individuals with complex estates, a trust offers far more control. A trust may be the better option if you:

• Own significant real estate holdings or multiple properties.
• Have business interests or complex partnership agreements.
• Want to avoid probate in a state with expensive or time-consuming probate processes.
• Desire privacy around your assets and beneficiaries.
• Wish to control how assets are used after your death (for example, preventing an ex-spouse from accessing money or ensuring funds are used only for education).
• Are concerned about creditor protection for your heirs.

The Privacy Factor

One often-overlooked difference is that wills are public record, trusts are not.

For high-net-worth families, privacy can be critical. A will could expose not just who inherits, but how much, making your family vulnerable to unwanted attention. A trust shields this information, keeping your financial affairs confidential.

Probate: What You Need to Know

Probate is the court-supervised process of validating a will and distributing assets. While some states make probate fairly straightforward, others are notoriously expensive and time-consuming.

For wealthy families, probate can also open the door to disputes, delays, and unwanted scrutiny. A trust is one of the most effective tools to sidestep this process.

Using TOD (Transfer on Death) Designations

Even without a trust, you can simplify wealth transfer with a Transfer on Death (TOD) designation. This allows certain accounts, like non-qualified brokerage accounts, to pass directly to beneficiaries, just like retirement accounts.

It’s a cost-effective way to reduce probate exposure if your estate is relatively simple.

Common Misconceptions

“I need a trust if I have $5 million or more.”
Not always true. The decision depends on your assets and goals, not just the dollar amount.

“Trusts are only for the ultra-wealthy.”
Incorrect. Even moderately wealthy families benefit from the privacy, control, and probate avoidance that trusts provide.

“A will covers everything.”
No. Beneficiary designations and account titling often supersede what’s written in a will.

The Role of Your Advisor and Attorney

Choosing between a will and a trust isn’t a DIY project. It’s a collaborative process between your financial advisor and your estate attorney.

Your advisor helps clarify your goals, analyze account structures, and ensure your overall financial plan aligns with your estate plan.

Your attorney drafts the legal documents and ensures they comply with state laws.

A good estate planning meeting should never be one-sided. If an attorney pushes only wills or only trusts without understanding your situation, that’s a red flag.

Key Questions to Ask Yourself

  1. Do I want privacy around my estate?

  2. How complex are my assets (real estate, businesses, partnerships)?

  3. Do I want to control how my heirs use their inheritance?

  4. How important is creditor protection for my family?

  5. Is my state’s probate process costly or burdensome?

  6. Am I willing to invest in setting up and maintaining a trust?

Your answers will guide whether a will, a trust, or a combination of both is best.

Combining Wills, Trusts, and Beneficiary Designations

In practice, many families use a layered approach:

• A will to cover personal wishes and simple assets.
• Beneficiary designations on retirement accounts and life insurance.
• A trust for complex assets, privacy, and ongoing control.

This strategy provides both efficiency and protection, ensuring no part of your estate is overlooked.

Final Thoughts

When it comes to wills vs trusts, there is no universal answer. Both tools serve important roles, and the right choice depends on your wealth, your goals, and your family dynamics. If your estate is simple and your state’s probate process is manageable, a will may be sufficient. If you have significant assets, value privacy, or want more control over how your wealth is used, a trust is likely the better fit.

Most importantly, don’t navigate this decision alone. Talk with your advisor to evaluate your accounts and goals, then work with an attorney who can explain both sides clearly and tailor a plan to you.

Your estate plan is more than a legal document. It’s a roadmap for how your legacy lives on. Done right, it ensures that your wealth passes on wisely, efficiently, and in alignment with your values.

Next Steps

Every estate is unique, and the best plan for you depends on more than just your net worth. It’s about your family, your goals, and the legacy you want to leave behind.

At Bonfire Financial, our team of CFP® professionals specializes in guiding high-net-worth families through these decisions with clarity and confidence. We’ll help you review your accounts, clarify your goals, and work alongside your attorney to ensure your estate plan supports the future you envision.

📞 Schedule a call with us today to start building an estate strategy that protects your wealth, avoids unnecessary pitfalls, and secures your legacy for generations to come.

ETFs vs. Mutual Funds: What’s the Real Difference?

Posted on by Brian Colvert

ETFs vs. Mutual Funds: What’s the Real Difference?

Why This Matters

When it comes to building a smart, diversified portfolio, knowing whether to invest via ETFs vs. mutual funds can make a significant difference. These two investment vehicles share many core features. They are both pooled investments managed under the Investment Company Act of 1940, offer exposure to a range of assets, and cater to different risk and strategy preferences.

But while they are similar in concept, the nuances matter. From trading flexibility to cost, tax efficiency, and suitability for beginners, understanding how ETFs and mutual funds differ can help you make informed decisions and potentially save you money along the way.

Today we will cover:

  • What ETFs and mutual funds actually are

  • Their key differences and similarities

  • Pros and cons of each, including insights not always covered in mainstream articles

  • A detailed FAQ to answer your most common questions

Listen Now:  iTunes |  Spotify | iHeartRadio | Amazon Music

What Is a Mutual Fund?

A mutual fund pools money from many investors and is managed by a professional or team that buys a diversified portfolio of securities such as stocks, bonds, or other assets based on a stated investment objective.

Key features of mutual funds:

  • Pricing and transactions: Priced once per day, after the market closes. This price is called the Net Asset Value (NAV). No matter when you place your order during the trading day, you receive that end-of-day price.

  • Fees and expenses: May include management fees, distribution (12b-1) fees, and potentially loads, either front-end (paid when buying) or back-end (paid when selling).

  • Minimum investment: Often designed for small or starter accounts. You can invest small amounts like $100 without worrying about buying full shares.

What Is an ETF?

An ETF, or Exchange Traded Fund, is also a pooled investment vehicle, but it behaves more like a stock in how it is traded.

Key features of ETFs:

  • Intraday trading: You can buy or sell ETF shares any time during market hours, and prices change live based on supply and demand.

  • Trading strategies: ETFs allow use of limit orders, stop orders, margin, short-selling, and even options in some cases.

  • Cost structure: Generally, there is no load, and expense ratios tend to be lower, especially for index-based ETFs, though some specialty ETFs may have higher fees.

  • Tax efficiency: The in-kind creation and redemption mechanism allows ETFs to avoid triggering taxable capital gains within the fund structure.

Side-by-Side Comparison: ETFs vs. Mutual Funds

Trading

  • Mutual Funds: Once per day at Net Asset Value (NAV).

  • ETFs: Intraday trading like stocks

Fees

  • Mutual Funds: May include loads, management, and 12b-1 fees

  • ETFs: Generally lower expense ratios and no loads

Minimum Investment

  • Mutual Funds: Often low, ideal for starter accounts

  • ETFs: Need full shares, though fractional trading is becoming more common

Tax Efficiency

  • Mutual Funds: Can trigger capital gains distributions

  • ETFs: In-kind mechanism reduces tax drag

Trading Features

  • Mutual Funds: Limited flexibility, trades only at NAV

  • ETFs: Flexible, allow limit orders, margin, and options

Transparency

  • Mutual Funds: Holdings disclosure may be delayed

  • ETFs: Typically disclose holdings daily

Best For

  • Mutual Funds: Small accounts, automatic investing, beginners

  • ETFs: Active traders, tax-sensitive investors, niche exposure

When to Pick ETFs and When Mutual Funds Fit Better

Choose ETFs if you:

  • Want real-time price control and use trading tools like limit orders

  • Are tax-conscious, especially in taxable accounts

  • Seek inexpensive access to niche or thematic strategies

  • Prefer daily transparency on fund holdings

Choose Mutual Funds if you:

  • Are building an account with small contributions, such as $100

  • Prefer simplicity and automatic investing

  • Are limited by retirement plans that only support mutual funds

  • Value the stability of once-per-day pricing

Hidden Costs and Risks to Know

  • ETFs may incur bid-ask spreads and sometimes trade at premiums or discounts to NAV. Liquidity matters, since thinly traded ETFs can cost more.

  • Mutual funds may carry loads or 12b-1 fees, which can reduce returns, especially in actively managed funds.

  • Behavioral risks: Some investors misuse ETFs by trading too often, which can reduce returns compared to buy-and-hold strategies.

FAQs: ETFs vs. Mutual Funds

Which is more cost-effective, ETFs or mutual funds?
ETFs generally have lower expense ratios and better tax efficiency, but certain mutual funds, especially institutional share classes, can be competitive.

Can ETFs reduce tax liabilities compared to mutual funds?
Yes. ETFs use an in-kind redemption process that helps avoid capital gains distributions, making them more tax-efficient than most mutual funds.

Are mutual funds better for small investors?
Often yes. Mutual funds let small investors start with minimal amounts without needing to buy full shares, which is ideal for new accounts or smaller contributions.

Can I use stop-loss or limit orders with mutual funds?
No. These tools are available only with ETFs because mutual funds transact only at end-of-day NAV.

Is one inherently safer than the other?
Neither structure is inherently safer. Safety depends on the underlying investments. However, mutual funds may feel less volatile because they do not trade intraday.

Are actively managed ETFs and mutual funds the same?
Yes, both can be actively managed. ETFs now include many actively managed strategies, though mutual funds are still more common in this category.

Can investors lose out by switching to ETFs?
Possibly. ETFs offer cost and tax benefits, but overtrading and poor timing decisions can hurt returns compared to long-term holding in mutual funds.

Do ETFs or mutual funds pay dividends?
Yes. Both ETFs and mutual funds can pay dividends if the underlying securities generate income. With ETFs, dividends are usually paid quarterly. Mutual funds may distribute dividends monthly, quarterly, or annually depending on the fund.

Can I buy ETFs in my 401(k)?
Most 401(k) plans do not allow direct ETF purchases. They typically offer mutual funds instead. However, if your 401(k) has a brokerage window, you may be able to access ETFs.

Which is better for retirement accounts?
Both can be appropriate. Mutual funds often dominate retirement plans because of their automatic investment features, while ETFs may offer better tax efficiency in taxable accounts.

Do ETFs have minimum investments?
No official minimums exist for ETFs, but you must buy at least one share (unless your broker allows fractional share investing). Mutual funds often have minimum investments ranging from $100 to $3,000.

Which has more options available, ETFs or mutual funds?
There are more ETFs and mutual funds combined than individual stocks on the U.S. exchanges. ETFs have grown rapidly and now offer thousands of strategies, from index funds to niche thematic investments.

Do ETFs or mutual funds have better performance?
Neither structure guarantees better performance. Returns depend on the fund’s strategy, management, and underlying assets. However, ETFs often outperform similar mutual funds after fees and taxes.

Can I dollar-cost average into ETFs?
Yes, but it may require your broker to support automatic investing in ETFs. Mutual funds are generally easier for dollar-cost averaging since they allow automatic contributions.

Which is better for beginners?
Mutual funds are often considered beginner-friendly due to their simplicity and automatic investment options. ETFs may appeal more to investors comfortable with brokerage accounts and trading.

Do ETFs ever close or shut down?
Yes. If an ETF does not attract enough assets, the provider may close it. Investors receive cash for their shares. Mutual funds can also close, though it is less common.

Are ETFs always cheaper than mutual funds?
Not always. While ETFs are often cheaper, some ultra-low-cost mutual funds rival ETFs on fees. Always compare expense ratios before deciding.

Can I trade ETFs after hours?
Yes. Many brokers allow ETF trading in pre-market and after-hours sessions. Mutual funds cannot be traded outside of standard market hours.

Do ETFs or mutual funds have commissions?
Most brokers today offer commission-free trading for ETFs and no-load mutual funds. However, some funds may still have transaction fees or loads.

Which is better for tax-advantaged accounts like IRAs?
Both can work well. Since taxes are deferred in IRAs, the ETF tax advantage is less important, so either structure can be suitable depending on investment goals.

Choosing What’s Right for You

ETFs and mutual funds share the same purpose: to help investors diversify with a single investment. The main differences are in trading flexibility, costs, tax treatment, and suitability for different types of investors.

  • ETFs are often best for those who want flexibility, low costs, and tax efficiency.

  • Mutual funds are often better for beginners, small accounts, or investors who want simple, automated investing.

  • The smartest move is to understand both options and choose what fits your strategy and goals.

Next Steps

Understanding the differences between ETFs vs. mutual funds is a great start, but the real question is how they fit into your financial plan. The right mix depends on your goals, your timeline, and the bigger picture of your financial life.

At Bonfire Financial, we help clients cut through the noise and build portfolios that actually work for them. If you are unsure whether ETFs or mutual funds are the right choice, or simply want a second opinion on your current strategy, we are here to help.

👉 Schedule a call with us today and get personalized guidance on your investments. A 15-20 minute conversation could help you save on costs, avoid common mistakes, and feel more confident about your financial future.

Thank You For Your Subscription

You’re in! Thanks for subscribing to our monthly newsletter. We will be sending you market updates, financial insights and inspiring travel ideas soon but in the meantime check out our blog, join us on Instagram or pop over to Pinterest.

Your Appointment Request has been Received

Thank you for reaching out! We are excited to learn more about you. Someone from our team will be in touch shortly.

Sign up now

Join us around the fire for monthly market updates, financial insights and inspiring travel ideas.

.

Sign up now

Receive tips

Give us a call

(719) 394.3900
(844) 295.0069
[email protected]