 
We would like to share a few success stories with you of several
of our clients. Their names have been changed for confidentiality
reasons.
1. Meet Bill and Anne. They are 63 and 61 years
old, respectively, and retired. When we first met them, the
majority of their wealth was split between real estate, trust
accounts and an IRA account. They were living off of the income
from Bill's pension from his 36-year employment with Boeing.
At
the time, a large brokerage firm was managing their account
through investments in stocks. Their broker was consistently
buying and selling stocks, in an attempt to "time the
market." In other words, the brokerage firm was taking
huge risks that were not paying off for Bill and Anne. We
found that their broker was investing their IRA money
in very high-risk technology companies, which were
far too risky for the couple. In addition, their trust was
listed as the beneficiary of the IRA account. This could have
potentially been one of the biggest mistakes Bill and Anne
ever made.
The
first thing we did with Bill and Anne was to evaluate their
financial situation, investment objective, goals and risk
tolerance. Next, we conducted a review of their trust, IRA
beneficiary information, and other relevant paperwork.
After
our initial review, we found two major problems with their
situation. First, they were taking too much risk in their
IRA. They needed to get into a diversified portfolio of
high quality stocks, bonds, and mutual funds. This would allow
their principle to grow at a more steady and predictable rate.
Secondly, the naming of the trust as the beneficiary could
be a mistake, which may have potentially resulted in tax
consequences of up to 50% of the IRA value. If
not done correctly, upon the death of the IRA owner, the entire
IRA may be distributed and become 100% taxable. We
intervened and advised Bill and Anne to change the beneficiaries
on the IRA. Thanks to tax laws passed in 2003, the children
now have the option to create a "Stretch-IRA" upon
the passing of the IRA owner and take an advantage of the
tax deferral treatment of an IRA over their life expectancy.
If it hadn't been for IFC Advisory, Bill and Anne could
have lost a substantial amount of money.
2. Let us introduce you to Jan and Larry. They
are 63 and 64 years old, respectively, and retired. Jan was
a school teacher for 25 years, and Larry was a manager at
Pfizer for 35 years.
When
Larry retired, his 401(k) plan was worth nearly $500,000.
His insurance salesman advised him to rollover his 401(k)
to a variable annuity. As a result, Larry spoke to his HR
department and asked them to send him a check for the entire
amount.
Upon
receiving the check, Larry and Jan were shocked to find out
that close to $100,000 was withheld for taxes. They
had not been told by their insurance salesman that a full
distribution request from a 401(k) plan would be immediately
taxable unless the funds were transferred to a qualified account
in 60 days or less. Jan and Larry became skeptical about their
insurance salesman and came to us for a second opinion.
As
always, the first thing we did with Jan and Larry was to go
over their investment objectives and future financial goals.
Next, we looked over all of their paperwork. We immediately
noticed that Larry took a normal distribution, rather than
a Trustee to Trustee transfer or an IRA Rollover. This resulted
in the 20% withholding by his former employer. In addition,
we questioned why their insurance salesman advised Jan and
Larry to invest in a variable annuity, when gains in an IRA
are already tax deferred. A variable annuity did not offer
any additional benefits to the couple and charged nearly 3%
in annual fees. Furthermore, we determined that the insurance
salesman would be paid a 6% commission on the sale
of the annuity. Clearly, the best interests of his clients
did not come first.
To
assuage this potentially catastrophic situation, we advised
Jan and Larry to cancel the annuity during the free-look period
and open an IRA Rollover account. We also recommended that
they match the 20% tax withheld to make the 401(k) plan whole
again to avoid paying any taxes.
The
IRA account is now invested in a diversified portfolio of
stocks, bonds, and mutual funds, tailored to their retirement
plans for a long and steady growth. Jan and Larry are very
happy with the unbiased and objective advice they have
received and continue to receive from IFC Advisory.
* Disclaimer:
Such successes are not guaranteed for similar situations,
as each case is different. Results will vary by client.
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