Category: Retirement

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.

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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.

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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.

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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.

Required Minimum Distributions: RMDs Explained

Posted on by Brian Colvert

Why Required Minimum Distributions Matter

You’ve spent years building your nest egg in tax-deferred retirement accounts, your IRA, 401(k), maybe even TSP. It feels like free money. But once you hit your 70s, a new rule kicks in: Required Minimum Distributions (RMDs). And they’re far from “nice-to-have.” The IRS requires withdrawals starting at age 73, and missing or mismanaging them can blow up your retirement plans instantly.

Let’s break it all down: what RMDs are, why they’re critical, how to calculate them exactly, and the smartest ways to minimize their tax and financial impact.

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What Exactly Are Required Minimum Distributions?

Required Minimum Distributions (RMDs) are the IRS’s way of making sure retirement funds don’t sit forever tax-deferred. Once you reach a certain age, you’re forced to start taking taxable withdrawals from your traditional IRAs or employer-sponsored plans like 401(k)s.

  • Why? Because decades of tax‑deferred growth mean big tax savings. Required Minimum Distributions ensure those deferred taxes eventually get paid.

  • No rollbacks allowed: Once withdrawn, you can’t return RMDs to the account, they’re permanent. 

When Do RMDs Start?

Thanks to the SECURE 2.0 Act, the timeline shifted:

  • Before 2023: RMDs began at age 72.

  • Starting 2023: The starting age moved to 73.

  • From 2033 onward: It will rise to 75 for those born in 1960 or later

Key Deadline Tips

Your first Required Minimum Distribution can be delayed until April 1 of the year after you reach RMD age, but delaying means you will owe two RMDs in the same year. After your first RMD, all future withdrawals must be completed by December 31 of each year.

Although allowed, delaying your first RMD is often a mistake because doubling up distributions can spike your taxable income all in one year.

How to Calculate Your Required Minimum Distribution

The calculation is straightforward, but precision matters.

  1. Find your account balance as of December 31 of the prior year.

  2. Determine your distribution period based on your age using the IRS tables (Uniform Lifetime, Joint and Last Survivor, or Single Life).

  3. Divide the account balance by the distribution period to find your required withdrawal.

Example:

If you are 75 with $2 million in your IRA at year end and your distribution period is 24.6, your RMD is approximately $81,300 ($2 million divided by 24.6).

If you have multiple accounts, you calculate each account’s RMD separately. For IRAs, you can withdraw the total from any one account if you prefer, but employer plans such as 401(k)s and inherited accounts must each have their own RMD taken directly.

Our partner custodian also offers a solid Required Minimum Distribution Calculator that you can use.

Penalties for Missing RMDs

This is where things can get expensive. The old penalty was 50 percent of the missed amount, but the IRS has reduced it.

  • The penalty is now 25 percent of the shortfall if you miss or under withdraw.

  • The penalty can be reduced to 10 percent if corrected promptly, usually by filing Form 5329 and paying the shortfall within two years.

Missing your RMD? Act quickly. The difference between a 25 percent penalty and 10 percent could mean saving tens of thousands of dollars.

Smart Strategies to Manage RMDs

Here is how to make Required Minimum Distributions work for you instead of against you.

Qualified Charitable Distributions (QCDs)

Donating directly from your IRA to a charity reduces your RMD amount and your taxable income. You can begin QCDs at age 70 and a half, even before you must start RMDs. If you are already giving to charitable causes, this can be an excellent way to maximize your impact while reducing taxes.

Roth Conversions

Moving funds from your traditional IRA into a Roth IRA can reduce future RMDs since Roth IRAs do not require distributions during the account owner’s lifetime. This strategy can also lower the tax burden for your heirs. Be aware that the amount converted is considered taxable income and could increase your Medicare premiums. Always take your current year’s Required Minimum Distributions before making a Roth conversion and consult with a tax advisor first.

Timing with Market Conditions

With market volatility, taking RMDs during a down year may force you to sell investments at a loss. One tactic is to liquidate the required amount in advance during stronger market periods and hold it in a stable account until needed.

Employer Plan Delays

If you are still working and do not own 5 percent or more of your employer, you may be able to delay RMDs on employer plans. However, this does not apply to IRAs.

Understanding Inherited RMDs

For inherited IRAs received after 2019, beneficiaries generally must empty the account within 10 years. If the original owner had already started RMDs, you may still need to take annual withdrawals during the 10 year period. This makes Roth IRAs an attractive estate planning option, since withdrawals are tax free and there are no lifetime RMDs for the original owner.

RMDs and Estate Planning

If estate planning is important to you, consider how RMD rules interact with inheritance.

Inherited IRAs now have the 10 year rule for full withdrawal. This means your heirs may be forced to take large taxable distributions during what could be their highest earning years. Sometimes, it makes sense for the account owner to convert funds to a Roth IRA and pay taxes now so heirs can inherit tax free assets later.

A Roth IRA grows tax free, does not require lifetime RMDs for the original owner, and offers heirs more flexibility in managing withdrawals.

Final Thoughts

Required Minimum Distributions are not something you can ignore or leave to chance. They have evolved over the years and so have the strategies for handling them. With new age thresholds, reduced penalties, and tax planning tools like QCDs and Roth conversions, there are opportunities to manage them in a way that benefits your long-term financial plan.

By planning ahead, you can keep your tax bill under control, protect your Medicare premiums, and preserve more wealth for your heirs. The key is to think several steps ahead. What seems like the best move today could have unintended consequences years later. Make sure your RMD plan is part of a broader financial plan and tax strategy that keeps you in control.

Next Steps

If you want help building a personalized RMD strategy or coordinating it with Roth conversions and Medicare planning, schedule a free consultation call with us today to build a strategy personalized to your unique situation.

Frequently Asked Questions About Required Minimum Distributions

What are Required Minimum Distributions?
Required Minimum Distributions are mandatory withdrawals you must take from certain tax-deferred retirement accounts once you reach the IRS-specified age. They ensure taxes are eventually paid on money that has grown tax deferred.

When do I have to start taking Required Minimum Distributions?
As of 2023, you must start taking RMDs at age 73. Starting in 2033, the age will increase to 75 for those born in 1960 or later.

How do I calculate my Required Minimum Distribution?
You take your account balance from December 31 of the previous year and divide it by the IRS life expectancy factor for your age. The result is the amount you must withdraw.

What happens if I miss an RMD?
The IRS can impose a penalty of 25 percent of the amount you failed to withdraw. If corrected quickly, the penalty may be reduced to 10 percent.

Can I avoid Required Minimum Distributions?
You cannot avoid them entirely for tax-deferred accounts, but you can reduce them by using strategies such as Roth conversions or Qualified Charitable Distributions.

Do Roth IRAs have Required Minimum Distributions?
Roth IRAs do not have RMDs during the lifetime of the original owner, making them a valuable tool for tax and estate planning.

Can I take my RMD from just one account?
If you have multiple IRAs, you can withdraw the total RMD amount from one or more of them in any combination. However, RMDs from employer plans like 401(k)s must be taken separately from each plan.

Breaking Down the Big Beautiful Bill: Tax Cuts and Opportunities

Posted on by Brian Colvert

Tax Opportunities in the Big Beautiful Bill

The passage of the One Big Beautiful Bill Act marked a major shift in retirement and tax planning strategies across the country. Officially passed in 2024, this sweeping legislation introduced the Big Beautiful Bill tax cuts, which have far-reaching implications for retirees, pre-retirees, and anyone looking to secure a more tax-efficient financial future.

Today, we’re breaking down the most important elements of the Big Beautiful Bill tax cuts and what they mean for your financial plan. Whether you are already retired or planning to retire soon, this guide will help you understand the new rules and show you how to take advantage of them.

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Why the Big Beautiful Bill Tax Cuts Matter

Tax policy affects every part of your retirement plan, from how much you pay now to how much you get to keep later. The One Big Beautiful Bill Act has made several changes that reward proactive planning, particularly for those who understand how to leverage deductions, tax brackets, and Roth conversions.

If you are wondering what the headlines mean for you, read on. The Big Beautiful Bill tax cuts could offer you significant opportunities, but only if you act before key provisions sunset.

Locked-In Tax Brackets: Clarity for Long-Term Planning

One of the standout provisions of the bill is the permanent locking in of the 2017 tax brackets. This includes:

  • Expansion of the 24 percent tax bracket
  • Continuation of higher standard deductions

For retirees, this is big news. Why? Because it removes the uncertainty surrounding tax bracket “sunsets” that were originally baked into earlier tax law changes. With stable brackets, you can now plan with confidence for the years ahead.

This consistency is especially helpful for strategies like Roth conversions, where timing and tax bracket forecasting are critical. Knowing your future tax rates allows you to take deliberate action now, instead of speculating on what might happen years down the road.

In addition to Roth conversions, having locked-in brackets makes income planning, charitable giving, and capital gains strategies more effective. Retirees can plan their withdrawals with more precision, minimizing tax surprises and maximizing tax-efficient income streams.

Action Steps:

  • Review your current and projected retirement income
  • Work with your financial advisor to determine if partial Roth conversions make sense given your new bracket stability

SALT Deduction Increase: A Temporary but Valuable Window

The One Big Beautiful Bill Act also increases the State and Local Tax (SALT) deduction cap from 10,000 to 40,000. This expanded deduction is significant, but it comes with an expiration date of 2028.

This change is especially beneficial to taxpayers in high-tax states or those with incomes under 500,000. If you are thinking about accelerating deductible expenses, making charitable contributions, or converting traditional retirement accounts to Roth IRAs, this higher deduction gives you more room to maneuver.

In many cases, combining the higher SALT deduction with strategic Roth conversions can result in substantial long-term tax savings. By using the deduction to offset taxable income from conversions, retirees may be able to shift significant assets into Roth accounts with a lower immediate tax cost.

Action Steps:

  • Calculate your itemized deductions for 2025 through 2027
  • See if bundling deductions, charitable giving, or Roth conversions during this window will help you take full advantage

Bigger Standard Deductions for Seniors

If you are over age 65, the Big Beautiful Bill tax cuts get even better. The Act includes an additional standard deduction of:

  • 6,000 for individuals
  • 12,000 for married couples filing jointly

This increase is stacked on top of the regular standard deduction, further lowering your taxable income. For retirees, this can create a strategic opening to convert traditional retirement accounts to Roth IRAs while remaining in a lower bracket.

Remember, money in Roth accounts grows tax-free and is not subject to required minimum distributions (RMDs). With higher deductions, you can potentially convert more without pushing yourself into a higher bracket.

Additionally, this larger deduction makes it easier for retirees to avoid paying taxes on Social Security benefits or capital gains. When properly planned, these tax savings can compound year after year.

Action Steps:

  • If you are 65 or older, review your adjusted gross income (AGI) and consider Roth conversions or harvesting gains within the new deduction limits

Estate Tax Exemption Increase: Breathing Room for Legacy Planning

Another major highlight of the One Big Beautiful Bill Act is the increase in the estate tax exemption to 15 million per individual or 30 million per couple. This move takes estate tax concerns off the table for the vast majority of Americans.

If your estate is approaching that threshold, now is the time to take advantage of gifting strategies, trusts, and other estate planning tools while the exemption is still high. There is always a possibility that future legislation could reduce this exemption, making it critical to act while the current rules are in place.

You can also use this time to transfer assets to heirs in a tax-efficient way, locking in current valuation levels and removing future growth from your taxable estate.

Action Steps:

  • Speak to your estate attorney or advisor about legacy planning strategies, especially if you own appreciating assets or a business

Medicare and Social Security: Future Uncertainties

While the Big Beautiful Bill tax cuts have many upsides, there are whispers of future funding issues related to Medicare and Social Security. The bill opens the door for potential restructuring in the coming years.

The concern? Future generations might face increased retirement ages or income-based benefit reductions. However, the majority of current beneficiaries likely will not see cuts anytime soon.

The political reality is that seniors make up a significant portion of the voting population, making it unlikely that Congress would enact sweeping cuts that affect current retirees. Still, it is wise to remain aware and plan accordingly.

Action Steps:

  • Continue monitoring Medicare and Social Security changes, but do not make major adjustments based on speculation
  • Keep your retirement plan updated annually to account for any changes

Additional Planning Tips to Maximize the Big Beautiful Bill Tax Cuts

  1. Bunch Deductions Strategically: Use years with higher income or conversions to bunch deductions like charitable contributions and medical expenses.
  2. Harvest Capital Gains: Consider realizing long-term capital gains up to the top of the 0 or 15 percent capital gains bracket.
  3. Leverage Donor-Advised Funds: Use Donor-Advised Funds to frontload multiple years of giving while maximizing itemized deductions.
  4. Set Up Qualified Charitable Distributions (QCDs): If you are 70.5 or older, you can donate directly from your IRA to a qualified charity, reducing your taxable income.
  5. Coordinate With Your CPA: Tax efficiency is best achieved when your advisor and CPA work together on a comprehensive strategy.

Key Takeaways and Next Steps

Here are the biggest things to remember about the Big Beautiful Bill tax cuts:

  1. Locked-in tax brackets allow for more confident long-term tax planning.
  2. The expanded SALT deduction is a limited-time opportunity that expires in 2028.
  3. Bigger standard deductions for seniors can create room for strategic income moves.
  4. Estate tax exemption increase provides flexibility in legacy planning.
  5. Stay grounded when it comes to Medicare and Social Security projections.
  6. Use this window of opportunity to be proactive with Roth conversions, charitable giving, and estate planning.

What You Can Do Right Now:

  • Schedule a retirement planning session with a qualified financial advisor
  • Run projections for Roth conversions over the next three to five years
  • Update your estate plan to reflect the new exemption amounts
    Take advantage of expanded deductions while they are still available
  • Coordinate tax strategies with your financial advisor and CPA for maximum benefit

Final Thoughts: Use the Big Beautiful Bill Tax Cuts to Your Advantage

Legislation like the One Big Beautiful Bill Act does not come along often, and when it does, the people who benefit most are those who act early and plan smart.

These tax cuts and deduction increases open a door for retirees to reduce tax burdens, preserve wealth, and create a more stable financial future. But these benefits will not last forever. With some provisions sunsetting in just a few years, now is the time to take action.

At Bonfire Financial, we specialize in helping retirees and pre-retirees build smart, tax-optimized financial plans. If you are unsure how to take advantage of the Big Beautiful Bill tax cuts, we are here to help.

>>> Schedule your personalized planning session today!

Stay informed, stay empowered, and make the most of every opportunity the One Big Beautiful Bill Act has to offer.

Self-Employed Retirement Planning: How to Maximize Tax Savings and Wealth

Posted on by Brian Colvert

Retirement planning can feel overwhelming for self-employed business owners, especially when juggling income, taxes, and growth. But here is the good news: being self-employed actually opens the door to powerful retirement strategies that traditional employees do not always have access to. With the right plan, you can reduce your tax bill today and build substantial wealth for the future.

Whether you are a consultant, contractor, freelancer, or small business owner, this guide will walk you through the top self-employed retirement planning options available. You will learn the benefits, contribution limits, and strategic uses of each so you can make informed choices that suit your goals. Let’s get started.

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Why Retirement Planning for the Self-Employed Is So Powerful

One of the biggest misconceptions among business owners is that retirement planning is just a tax strategy. In truth, it is both a tax advantage and a long-term wealth-building tool.

When you are self-employed, you are not limited to the same options as W-2 employees. You have more flexibility, higher contribution limits in some cases, and the potential to structure plans creatively. That means more money in your pocket now and in retirement.

Let us start by breaking this into two key goals:

  1. Lower your taxable income today

  2. Grow tax-advantaged wealth for tomorrow

With this lens in mind, let us explore the most effective tools available.

Traditional and Roth IRAs

The Basics

IRAs are available to just about everyone with earned income, including the self-employed. These are often the starting point for many business owners who are just beginning their retirement planning journey.

  • Traditional IRA: Contributions may be tax-deductible depending on your income and participation in other retirement plans.

  • Roth IRA: Contributions are not tax-deductible, but your money grows tax-free and qualified withdrawals in retirement are also tax-free.

Head to this page to get the most up-to-date annual contribution limits for each plan. Head over here to dig deeper into the difference between a Traditional IRA and a Roth IRA.

Why IRAs Work for Business Owners

While the contribution limits are relatively low, IRAs are easy to set up and require no ongoing employer maintenance. They are especially useful when used in combination with higher-limit plans like Solo 401(k)s or SEP IRAs.

SEP IRA: Simplified Employee Pension Plan

What It Is

The SEP IRA is a favorite among solopreneurs and business owners without employees. It allows you to contribute a percentage of your business income directly into your retirement account.

Key Benefits

  • Contributions are tax-deductible

  • Flexible contributions (you can vary or skip them from year to year)

  • Very easy to set up and maintain

Things to Watch Out For

If you have employees, SEP contributions must be made equally for them. For example, if you contribute 10 percent of your salary for yourself, you must contribute 10 percent for eligible employees too. This makes the SEP less ideal for growing teams.

Solo 401(k): A High-Powered Option

What It Is

A Solo 401(k), also known as an Individual 401(k), is available to business owners with no full-time employees (except for a spouse). It combines features of both a traditional 401(k) and a profit-sharing plan, making it a powerful vehicle for self-employed retirement planning.

Roth Option

One of the best parts of a Solo 401(k) is that it offers a Roth component. You can choose to contribute post-tax dollars, which then grow tax-free.

Advantages

  • Much higher contribution limits than IRAs

  • Option to go pre-tax or Roth

  • Ability to add profit-sharing

  • Loans are allowed from the plan

When to Use It

Solo 401(k)s are ideal for business owners who are trying to contribute the maximum possible each year and want flexibility in tax treatment. They do require more paperwork than IRAs, but the benefits are significant.

SIMPLE IRA: For Business Owners with Employees

What It Is

A SIMPLE IRA is designed for small businesses with fewer than 100 employees. It is easier to administer than a 401(k) and allows both the employer and employee to contribute.

Pros and Cons

This is a good solution if you want a low-cost retirement plan for you and your employees. However, it lacks the higher limits and Roth options of other plans.

Cash Balance Plans: Supercharging Late Starters

What It Is

Cash balance plans are defined benefit plans that allow large contributions well above those of 401(k)s or SEP IRAs. They are best suited for high-income earners looking to accelerate retirement savings.

Contribution Potential

Depending on your age and income, contributions can range from $100,000 to over $300,000 per year. This makes it one of the best options for late starters or those looking for a big tax deduction.

Ideal Candidates

  • Consultants

  • Attorneys

  • Solo medical professionals

  • Business owners earning $500,000+

Cash balance plans are complex and must be administered carefully, but they are unmatched when it comes to high-limit contributions.

Multi-Plan Strategy: Yes, You Can Combine

If you have multiple businesses or streams of income, you may be able to layer plans and contribute more overall. Here is how:

  • Max out your 401(k) as an employee in one business

  • Use a SEP or Solo 401(k) on your 1099 income from a different, unrelated business

The salary deferral limit applies once across all plans, but employer contributions (like profit-sharing) can be made separately as long as the businesses are unrelated.

This strategy is ideal for high earners who wear multiple hats and want to optimize every angle of self-employed retirement planning.

Self-Employed IRA Rules: What You Need to Know

When using any of these plans, it is crucial to understand and follow the IRS rules that govern self-employed IRAs. A few key rules include:

  • Contribution deadlines: IRAs and SEP IRAs can be funded up to the tax filing deadline (including extensions). Solo 401(k)s must be established by year-end.

  • Eligibility: Your business income must be earned and reported. Passive income (like rental income) typically does not qualify.

  • Catch-up contributions: Catch-up contributions are available for those 50 and older on most plans.

  • No employees: For Solo 401(k)s and cash balance plans to stay simple and beneficial, you should not have full-time employees.

Always work with a financial planner and/or tax professional to confirm that your contributions and setups follow current IRS regulations.

Supercharge Your Wealth: Tips for the Self-Employed

Ready to take your self-employed retirement planning to the next level? These tips are designed specifically for self-employed business owners who want to do more than just check a box. Whether you’re just getting started or looking to accelerate your savings, these strategies can help you make the most of your income, reduce taxes, and build lasting wealth.

  1. Start now: The earlier you begin, the more compound growth works in your favor.

  2. Work with a pro: Designing custom plans (like cash balance or multi-plan strategies) is worth doing right.

  3. Reevaluate annually: Income changes? Business structure shifts? Your retirement plan should adjust too.

  4. Think long term: Do not just aim to reduce taxes this year. Plan for distributions, Required Minimum Distributions, and tax brackets in retirement.

  5. Consider layering: Use IRAs alongside SEP or Solo 401(k)s for maximum flexibility.

Final Thoughts

Self-employed retirement planning is not just about saving for the future. It is about taking control of your finances, minimizing taxes, and building serious wealth as a business owner. Whether you are earning $80,000 a year or $800,000, there are strategies you can implement now to change your financial future.

Next Steps

If you are unsure where to start or want help designing a custom retirement plan that fits your income and lifestyle, reach out to our team at Bonfire Financial. We specialize in helping business owners make the most of every dollar they earn. Schedule your call now.

What to Do After Maxing Out Your 401k

Posted on by Brian Colvert

What to Do After Maxing Out Your 401k

Maxing out your 401k is a major milestone when investing for retirement. It shows commitment to long-term financial planning, a proactive mindset, and an understanding of the power of compound growth. But it also leads to the inevitable question: What do I do next?

If you’re asking this, congratulations, you’re already ahead of the pack. And you’re in the right place to explore your next best steps.

Today, we’ll walk through a structured framework for what to do after maxing out your 401k, diving into Roth IRAs, taxable brokerage accounts, backdoor Roth strategies, and how to think about liquidity, flexibility, and tax planning in your broader investment picture.

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Step 1: Confirm You’ve Truly Maxed Out the 401(k)

First things first: let’s define what “maxed out” means. Check the annual contribution limits < This page is updated annually to make sure you have the most up-to-date numbers.

But here’s a nuance: maxing out your 401k isn’t just about hitting the annual limit. It’s also about making sure you’ve taken full advantage of your company match. Never leave free money on the table. If your employer offers a match (say 100% of the first 4% of your salary), make sure you’re contributing at least that much.

Once you’ve contributed to the max and received the full match, then it’s time to move on to the next vehicle.

Step 2: Explore a Roth IRA

The Roth IRA is often the first recommendation for clients who are looking to invest beyond their 401k, and for good reason:

  • Tax-free growth: You fund a Roth IRA with after-tax dollars, and in exchange, your investments grow tax-free.

  • Tax-free withdrawals: Once you’re 59½ and the account has been open for at least five years, you can withdraw both contributions and earnings tax-free.

  • No required minimum distributions (RMDs): Unlike traditional IRAs and 401(k)s, Roth IRAs don’t require you to take distributions in retirement.

There are annual contribution limits here too.

But don’t worry. There’s a workaround.

Step 3: Consider a Backdoor Roth IRA

If your income is too high for a regular Roth IRA, you may still be able to contribute through a Backdoor Roth IRA. This involves:

  1. Contributing to a non-deductible traditional IRA (after-tax money).

  2. Converting it to a Roth IRA.

Seems simple, but there are a few caveats:

  • If you have existing traditional IRA balances, the IRS uses a pro-rata rule to calculate taxes, meaning some of the conversion may be taxable.

  • Timing matters. It’s smart to consult a tax advisor or financial planner to execute this properly.

For many high earners, the backdoor Roth can be a powerful tool for adding tax-free growth to their portfolio.

Step 4: Open a Taxable Brokerage Account

Once your tax-advantaged options are maxed out and you want to continue investing for retirement, it’s time to consider a taxable brokerage account. Don’t let the term “taxable” scare you. This type of account actually offers some key advantages:

Advantages of a Taxable Account:

  • Unlimited contributions: Unlike retirement accounts, there’s no cap on how much you can invest.

  • No income limits: Anyone can open and fund one.

  • No early withdrawal penalties: You can access funds at any time.

  • Wide investment flexibility: You can invest in stocks, bonds, mutual funds, ETFs, real estate trusts, private placements, and others.

  • Liquidity: Need to fund a real estate purchase? Pay for a wedding? Start a business? This account gives you that flexibility.

Tax Considerations:

Growth in a brokerage account is taxed, but how it’s taxed matters:

  • Capital gains tax applies to investments held over one year (long-term).

  • Ordinary income tax applies to gains on assets sold within one year.

  • Dividends may also be taxable depending on their classification.

But there are strategies to reduce taxes, like:

  • Tax-loss harvesting: Selling underperforming assets to offset gains.

  • Asset location: Placing tax-efficient investments in your taxable account and tax-inefficient ones in your tax-deferred accounts.

Step 5: Think Flexibly with Your Future in Mind

A common mistake is viewing investment accounts in silos. Instead, think about them as tools that serve different purposes and timeframes.

Here’s how it breaks down:

Account Type Best For Key Benefit
401k Long-term retirement savings Tax-deferred growth + employer match
Roth IRA Long-term + tax diversification Tax-free growth + no RMDs
Brokerage Acct Flexibility + early retirement + legacy planning No contribution limits, no penalties for early withdrawals

If you plan to retire before age 59½, a taxable account becomes even more important. It gives you penalty-free access to funds while your retirement accounts keep compounding in the background.

Step 6: Use Brokerage Accounts for Creative Planning

Let’s take it a step further.

Real Estate Opportunities

Thinking about buying a rental property? A brokerage account can be tapped to fund a down payment without penalties. This is especially helpful for investors who want to diversify into real estate assets without triggering retirement withdrawal rules.

Tax Bracket Optimization

Planning to retire early? You may enter a lower tax bracket before Medicare or Social Security kicks in. You can draw from brokerage accounts strategically, keeping income low and managing your bracket for Roth conversions or to reduce long-term tax exposure.

Collateralized Lending

Did you know you can borrow against your taxable account? Many custodians offer lines of credit backed by your portfolio. This can be helpful for:

  • Avoiding the sale of appreciated assets (and the taxes that come with it)

  • Making time-sensitive investments

  • Helping family members (like a child’s down payment) without touching the principal

It’s not for everyone, but for high-net-worth individuals, this can be a sophisticated strategy to create liquidity without triggering taxes.

Step 7: Automate and Grow

Just like your 401k, your brokerage account can benefit from automation. Set up monthly contributions to stay disciplined and consistent. Over time, this can grow into a substantial pool of capital.

We often see clients fund these accounts with:

  • Annual bonuses

  • RSU or stock option sales

  • Proceeds from home sales

  • Inheritance windfalls

  • Business profits

By treating it like your 401k, with regular contributions and a long-term mindset, you’ll build serious wealth over time.

Bonus: Don’t Forget the Other Vehicles

401(k)s, Roth IRAs, and brokerage accounts are the main trio when investing for retirement, but depending on your goals, you might also explore:

  • Health Savings Accounts (HSAs): HSAs are triple-tax advantage (pre-tax contributions, tax-free growth, tax-free withdrawals for medical expenses).

  • 529 Plans: For tax-advantaged education savings.

  • Cash-value life insurance: Life insurance can be a niche tool for legacy or advanced planning.

  • Real estate LLCs or syndications: Direct ownership or fractional investments.

Each tool has its own benefits, risks, and tax implications, so work with a financial planner to build a strategy tailored to your life.

Final Thoughts

If you’ve maxed out your 401k as you are investing for retirement, you’re doing something right. But don’t stop there. Understanding what to do after maxing out 401k contributions opens the door to a wider world of wealth-building strategies that are more flexible, tax-aware, and goal-driven.

Here’s a quick recap:

  1. Max out the employer match and annual limit in your 401(k)

  2. Open a Roth IRA or explore a backdoor Roth

  3. Build out a taxable brokerage account

  4. Think long-term and flexible, especially for early retirement or large life events

  5. Use tax strategies and automation to make your plan efficient and consistent

At Bonfire Financial, we work with clients every day who want to optimize their savings and make the most of their money. If you’re ready to go beyond the basics and build a plan that’s personal, strategic, and forward-thinking, we’re here to help.

Ready to take the next step?

Schedule a free consultation. Let’s map out your next move.

Roth Conversion Strategies: Build Wealth for Your Family, Not the IRS

Posted on by Brian Colvert

When it comes to building wealth and leaving a financial legacy, most people focus on how much they can accumulate. But what many overlook is how much of that money will actually reach their family, and how much could end up going to the IRS instead.

One of the most powerful yet underutilized strategies in estate and tax planning is Roth conversion strategies. While often discussed in the context of retirement planning, Roth conversions can play a key role in reducing the future tax burden on your heirs and maximizing the impact of the wealth you leave behind.

Today we’ll break down exactly how Roth conversions work, why they’re valuable for estate planning, and how to decide whether this strategy is right for you.

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What Is a Roth Conversion?

A Roth conversion is the process of transferring money from a traditional retirement account (like a traditional IRA or 401k) into a Roth IRA. When you make the conversion, you pay ordinary income tax on the amount you transfer, but after that, the funds grow tax-free, and withdrawals are also tax-free, assuming the account has been open for at least five years and you’re over age 59½.

People often use Roth conversions when they expect to be in a higher tax bracket later or want to maximize tax-free income in retirement. But there’s another layer to this strategy: reducing the tax burden on your heirs.

Why Roth Conversions Matter for Estate Planning

Thanks to recent tax law changes under the SECURE Act and SECURE 2.0, inherited IRAs now come with a strict timeline. If a non-spouse (such as a child) inherits your IRA, they must withdraw all the funds within 10 years, and those withdrawals are taxed as ordinary income.

This is a big shift from the previous “stretch IRA” rule that allowed beneficiaries to spread withdrawals over their lifetime. The new 10-year rule compresses the tax liability into a much shorter period, often hitting heirs during their peak earning years.

For example, let’s say your child earns $120,000 annually and inherits a $500,000 IRA. Instead of spreading withdrawals out over decades, they have to withdraw all the funds within 10 years. That could push their income over $170,000 in a given year, bumping them into a much higher tax bracket and significantly reducing what they ultimately get to keep.

By converting portions of your IRA to a Roth IRA during your lifetime, you pay the taxes now, and your heirs inherit an account that grows tax-free and can be withdrawn tax-free. Even though they still have to empty the account within 10 years, the absence of taxes makes it far more beneficial.

Real-World Example: A Client’s Legacy in Action

We recently worked with a client who brought her adult son to a financial planning meeting. She was a single woman in her 70s, financially secure, and had no need to rely on her IRA for living expenses. Her son, a successful professional, was in a significantly higher tax bracket than she was.

If she left her IRA untouched and passed away, her son would inherit a sizable sum and an equally sizable tax bill. Not only would he need to withdraw hundreds of thousands of dollars within a decade, but each withdrawal would be taxed at his current income rate.

By contrast, if she slowly converted the IRA into a Roth over a period of several years, carefully keeping each conversion within her lower tax bracket, she could shoulder the tax bill at her lower rate, allowing her son to inherit a Roth IRA instead. He would still need to withdraw the funds within 10 years, but he wouldn’t owe a dime in taxes.

The approach of evaluating Roth conversion strategies not only preserved more of the money for her family, but it gave them more flexibility and peace of mind during an emotionally difficult time.

Understanding the Tax Bracket “Fill” Strategy

One of the most practical ways to approach Roth conversions is through “tax bracket filling.” The idea is to make use of your current marginal tax bracket without tipping into the next one.

Here’s how it works:

Let’s say you’re a single filer with $60,000 in taxable income. The 22% federal income tax bracket in 2025 goes up to about $95,375. That means you could convert up to $35,375 of IRA money and still stay within the 22% bracket.

By “filling the bracket” with Roth conversions, you can transfer funds without triggering a jump into a higher tax tier. This is especially effective if you’re in a low-tax phase of life, such as early retirement, before taking Social Security or required minimum distributions (RMDs).

This strategy is repeatable year after year and can gradually shift large portions of your traditional IRA into a Roth IRA while minimizing your total lifetime tax liability.

Why Timing Matters for Roth Conversions

The effectiveness of a Roth conversion strategy often comes down to timing. The most advantageous window tends to be:

  • After retirement but before you begin collecting Social Security

  • Before you are required to take RMDs at age 73 (or 75, depending on your birth year)

  • During years when your income is temporarily lower (job transition, business loss, early retirement, etc.)

In these windows, your marginal tax rate may be much lower than what it will be in future years, or what your heirs will face.

It’s also important to think about where tax policy is heading when considering Roth conversion strategies. Many financial professionals believe federal income taxes are likely to increase in the coming decades due to growing national debt and budget deficits. Paying taxes today, when rates are relatively low, could be a smart long-term decision.

A Closer Look at the 10-Year Inheritance Rule

The SECURE Act’s 10-year rule means that non-spouse beneficiaries must completely drain an inherited IRA within a decade. While there’s no rule that says the withdrawals must be taken evenly each year, they must be completed by the end of year 10.

The downside? If the heir waits too long and takes a large lump sum at the end of the 10 years, it could cause an enormous tax spike.

This rule does not apply to Roth IRAs in the same way. Beneficiaries still have to follow the 10-year withdrawal rule, but distributions are tax-free, as long as the Roth account has been open for at least 5 years.

That means your heirs can:

  • Let the money grow tax-free for up to a decade

  • Withdraw it at a time that suits their financial situation

  • Avoid adding taxable income during their highest-earning years

Who Should Consider Roth Conversions for Estate Planning?

Roth conversion strategies are especially effective for individuals who meet the following criteria:

1. Retired and in a lower tax bracket than their children
If your income has decreased but your children are in their peak earning years, it makes sense for you to pay the taxes now so they don’t get hit with a much larger tax bill later.

2. Financially secure and not dependent on IRA withdrawals
If you don’t need your traditional IRA for day-to-day expenses, you can afford to strategically convert and handle the tax costs over time.

3. Planning to leave a large IRA to heirs
The larger the IRA, the greater the potential tax burden on your beneficiaries. Roth conversions reduce this future liability.

4. Wanting to reduce estate size for tax purposes
While estate tax only affects a small percentage of families, converting to a Roth can reduce your estate’s taxable size while still preserving value for your heirs.

5. Believing tax rates will go up in the future
If you suspect federal income tax rates will increase over the next 10–20 years, locking in today’s lower rates could be a wise move.

When Roth Conversions Might Not Make Sense

Like all financial planning tools, Roth conversions aren’t right for everyone. Situations where it might not be ideal include:

You need the money now
If you rely on your IRA for income, the added tax burden of a conversion might not be worth it.

You’re currently in a high tax bracket
If your current tax rate is higher than what your heirs will face, paying the taxes now may not make sense.

You plan to donate the IRA to charity
Qualified charities don’t pay taxes on IRA distributions. Leaving your IRA to a nonprofit could be more efficient than converting it to a Roth.

You can’t afford the taxes from the conversion
Ideally, taxes on a conversion should be paid from cash savings, not from the IRA itself. If you have to dip into the converted funds to cover the tax bill, the strategy loses a lot of its effectiveness.

Debunking Common Roth Conversion Myths

Let’s address a few common misunderstandings:

Roth conversions are only for young investors
Reality: Roth conversions can be especially effective for retirees and those doing estate planning, especially if their tax bracket is lower than their heirs’.

You’ll lose money by paying taxes now
Reality: Paying taxes now at a lower rate can save money in the long run, especially if future tax rates are higher.

Roth IRAs don’t help with inheritance planning
Reality: Roth IRAs can be a powerful inheritance tool, especially under the 10-year rule — no required taxes means more flexibility and value for your heirs.

How to Execute a Roth Conversion Estate Strategy

If you’re considering this strategy, here are a few key steps to follow:

Step 1: Run Projections
Work with a CFP® or tax professional to analyze your current and future tax brackets, your heirs’ tax situations, and your long-term retirement needs.

Step 2: Start Small and Be Strategic
Don’t convert your entire IRA in one year. Spread conversions over several years to manage your tax bracket and avoid triggering unintended Medicare or Social Security impacts.

Step 3: Use Non-IRA Funds to Pay the Taxes
To get the full value of the conversion, pay the taxes using cash from savings. That keeps the entire converted amount growing tax-free.

Step 4: Communicate Your Plan  
Make sure your heirs understand what you’ve done and why. Update your beneficiaries and document your estate plan accordingly.

Final Thoughts: Taxes Are Inevitable, But Smart Planning Isn’t

At the end of the day, the choice often comes down to this: Would you rather your money go to your family, or to the IRS?

Roth conversion strategies allow you to take control of that decision. When used strategically, they can reduce the long-term tax burden, offer more flexibility to your heirs, and help ensure that the wealth you worked so hard to build actually benefits the people you care about most.

It’s not a one-size-fits-all solution, but it’s one of the most powerful planning tools available if used at the right time, in the right way.

Need personalized Roth conversion strategies?

At Bonfire Financial, we help clients turn complex tax rules into smart, actionable strategies. We welcome you to schedule a call to see how Roth conversions could fit into your estate plan.

How Diversification Can Save You From a Retirement Meltdown

Posted on by Brian Colvert

If you ask most people what the secret to a successful retirement is, you might hear answers like “save early,” “invest in the right stocks,” or “work with a good financial advisor.” All great advice. But there’s one strategy that often gets overlooked because it’s not flashy, it’s not new, and it won’t land you on the cover of Forbes. That strategy? Diversification.

Let’s be honest: Diversification isn’t exciting. It doesn’t come with big headlines or viral TikToks. But if you’re heading into retirement (or already there), diversification could be the very thing that helps you sleep at night when the markets get bumpy. And that’s worth talking about.

Today we’re going to break down why diversification is more than just a buzzword, it’s a lifeline. We’ll look at how it works, why it matters more in retirement than during your growth years, and how to use it strategically to protect your hard-earned assets.

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What Is Diversification, Really?

At its core, diversification means not putting all your eggs in one basket. In investment terms, it means spreading your money across different asset classes, sectors, industries, and geographies. The goal? To reduce your exposure to any single risk.

It doesn’t mean you won’t ever lose money. It does mean that when one area of the market is down, another might be up—helping to smooth out the ride.

Why Diversification Matters More in Retirement

When you’re in your 30s, 40s, or even early 50s, you’re in growth mode. You have income coming in, time on your side, and the ability to take on more risk. You might go all in on tech stocks, try your hand at crypto, or take a flyer on a promising startup. And when those bets pay off, it feels great.

But retirement changes the game.

You’re no longer building your nest egg, you’re relying on it. Your paycheck is gone. Your expenses? Still very much alive and well. And the fear of running out of money? Real.

This is where diversification becomes critical.

A highly concentrated portfolio might have served you well in your accumulation phase. But in retirement, big swings in value become dangerous. A 50% drop in a single stock might not have phased you before, but it hits differently when you’re drawing from your portfolio to cover everyday expenses.

Growth vs. Protection: The Shift in Strategy

Think of it like this: In your career, being specialized often leads to higher pay. A cardiac surgeon earns more than a general practitioner. A software engineer specializing in AI might command a bigger paycheck than a generalist developer.

The same logic applies in investing. Specializing—or concentrating—can yield big results. But it comes with more volatility.

As you near retirement, your strategy needs to shift from growing your wealth to protecting it. You don’t need 40% returns. You need reliable, steady performance and the confidence that your money will be there when you need it.

What Diversification Looks Like in Retirement

So what does a diversified portfolio actually look like for someone in or near retirement? Here are the main components:

  1. Equities Across Sectors and Sizes: Investing in a broad mix of stocks, including large-cap, mid-cap, and small-cap companies across different sectors (technology, healthcare, consumer goods, etc.) helps avoid overexposure to one area of the market.
  2. ETFs and Mutual Funds: Exchange-traded funds (ETFs) and mutual funds offer built-in diversification. One fund can give you exposure to hundreds or even thousands of companies.
  3. Fixed Income (Bonds, CDs, Treasuries): Bonds are a staple of retirement portfolios. From Treasury bonds backed by the U.S. government to corporate bonds and municipal offerings, they provide income and stability. CDs and short-term Treasuries offer ultra-safe options for near-term needs.
  4. Real Estate: Whether through REITs or directly owned property, real estate can provide a stable income stream. It also adds a layer of diversification that doesn’t always move in lockstep with the stock market.
  5. Alternative Investments: Private credit, private equity, or commodities like gold can offer additional diversification. Alternative investments often behave differently than stocks and bonds.
  6. Cash Reserves: Don’t underestimate the power of having some cash on hand. In market downturns, cash gives you flexibility to avoid selling assets at a loss.

It’s Not Just About What You Own, It’s About When You Use It

Diversification isn’t only about what you invest in. It’s also about how and when you draw on those assets. If the stock market drops 20%, you don’t want to be forced to sell equities to fund your living expenses. Instead, you might pull from your bond ladder, real estate income, or cash reserves. This approach gives your equities time to recover, and your overall portfolio a better chance of staying intact.

Strategic diversification gives you flexibility. It gives you options. And options are everything in retirement. Diversification helps cushion against isolated market dips, but portfolios drift if left unattended. Don’t forget, rebalancing brings them back into alignment.

Common Misconceptions About Diversification

Let’s clear up a few myths:

  • Myth 1: “I already own five stocks, so I’m diversified.”Not quite. True diversification spans sectors, asset classes, and risk profiles. Five tech stocks? That’s not diversification—it’s concentration.
  • Myth 2: “Diversification means I won’t make as much money.”Possibly true, but also missing the point. You don’t need outsized gains in retirement—you need consistency. Remember: doubling your money won’t change your life as much as losing half of it.
  • Myth 3: “All diversification is equal.”Nope. Diversifying across mutual funds that all hold the same top 10 stocks isn’t true diversification. Look under the hood of your investments.

How to Tell If You’re Truly Diversified

A few good questions to ask yourself :

  • How much of my portfolio is in one sector or company?
  • Am I exposed to different types of investments (stocks, bonds, real estate, etc.)?
  • Do I have income sources that don’t rely on the stock market?
  • If the market dropped 30% tomorrow, would I be forced to sell something at a loss?
  • Is my risk level aligned with my retirement goals?

If you’re unsure, it’s time for a checkup.

The Real Goal: Peace of Mind

At the end of the day, diversification isn’t about being fancy. It’s about creating a plan that gives you confidence.

You don’t want to be the retiree glued to CNBC, wondering if your favorite stock is about to tank. You want to be the retiree sipping coffee, knowing your portfolio is built to weather the storm.

Because here’s the thing: the market will dip. There will be recessions. Headlines will get scary. But a well-diversified portfolio doesn’t panic, it pivots.

Final Thoughts: Diversify Like Your Retirement Depends on It (Because It Does)

If you’re still chasing big returns with concentrated bets as you near retirement, it’s time to reconsider. There’s nothing wrong with going big during your accumulation years. But once you’re approaching or entering retirement, the name of the game is preservation.

And that’s where diversification shines.

It may not be exciting. It may not be trendy. But it works. And when it comes to your retirement, that’s exactly what you want.

Next Steps

Need help creating a diversified retirement plan that actually fits your life? Let’s talk. At Bonfire Financial, we help clients build smart, stable portfolios that are designed to go the distance. Schedule a call with us today! 

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