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Featured Article
Maximize Your Social Security
Curt's Quick Comment
Stretch Your IRA
From the Financial Presses
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Just to brag one more time.  I was published in the February issue of Military Officer.  You can read it here...
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Financial Strategies
Planning Techniques, Procedures and Guidance for Military Professionals

Well...the Super Bowl is over (actually, I think it is over.  I couldn't keep myself awake until the end).  Now there is nothing to watch on Sunday afternoons other than the Winter Olympics.

There are probably some investing lessons to be learned from the Super Bowl.  Even a master like Payton Manning can have a bad day.  Just like a master investment fund manager can have a bad day...or decade.  That is why I tend to chose Index Funds to populate the portfolios I manage.

This article of Financial Strategies starts off with a primer on maximizing Social Security benefits.  There is a lot to planning your social security benefits.  If you take anything from this issue, realize that you need to make a reasoned decision on how to take your Social Security.  Don't just go on auto-pilot.

The second article talks about how you can use your IRA to transfer wealth to the next generation.  It warns about tax concerns in the article, but let me emphasize it again here.  There can be tax consequences especially if a grandchild is a beneficiary.  There is actually a tax called the Generation Skipping Transfer Tax.

I wrap up with a couple of articles shown on my website.  The first one helps you make sure you understand your 401(k).  The second talks about the tax benefits of oil and gas investing...which may be appealing now as you are licking your tax wounds.

Have a great February and turn off CNBC!

Curtis L. Sheldon, EA, AIF®
C.L. Sheldon & Company, LLC
(703)542-400 or (800) 928-1820
Maximize Your Social Security

Almost 80% of Americans take their Social Security Benefits early.  Why?  I don't know for sure, but I bet most of them don't put much thought into it.  Let me put it this way...If I offered you a Savings Account that paid 7.43% interest with no risk would you want it?  That is essentially what Social Security pays, but yet many Americans take their benefits early.  Here are some other concepts you might want to understand before you take Social Security.


Delaying Benefits.  As demonstrated above, if you wait to take your benefits you earn interest.  Technically, Social Security increases 8% for each year of delay (It doesn't compound so it is closer to a 7.43% compound rate) after your early retirement age (currently age 62) until you reach age 70.  This is especially important to consider for surviving spouse benefits.  Remember, the surviving spouse will earn the highest of the surviving spouse's earned benefits or the deceased spouse's earned benefits.


File and Suspend.  You can file and suspend your benefits.  When you file and suspend you activate your benefits and then stop the payment.  This can be helpful in two scenarios.

  • Concerns About Losing Benefits.  Many individuals take their benefits early because they are concerned that they may not live long enough to get their money back.  If you file and suspend you can change your mind and get back pay.  So, if you become ill and it becomes obvious that you're not going to make it that long or if you have big bills you can get the benefits you suspended paid in a lump sum.  If you don't need the benefits you can reinstate the benefits at the higher amount.
  • Starting Spousal Benefits.  You can file and simultaneously your spouse claims spousal benefits.  Then the older/wage earner spouse suspends.  The result of this is that the spousal benefits are paid immediately and the wage earners benefits continue to grow in value until age 70.

One word of warning, if you file and suspend make sure you make arrangements to pay your Medicare premiums so that you maintain your access to TRICARE For Life.


Working at Different Ages.  If you start taking Social Security Benefits before Full Retirement Age (66 or 67 for most of us) you will lose benefits if you earn too much money ($15,480 in 2014).  In the year you reach Full Retirement Age, the reduction will be less.  If, on the other hand, you work after age 70 you can still increase the value of your benefits by increasing the earnings on which your benefits are calculated. 


Social Security Benefits Taxation.  Benefits for most readers of this newsletter will be taxable.  However, careful tax planning in regards to investments can reduce taxable income to a point where the benefits won't be taxable.  This may be applicable for your parents or if you decided to not take SBP.


There are a lot of variations and the combinations get even more complicated if both spouses have earned benefits.  This is something I spend a lot of time studying and working on for my clients.  If you'd like me to take a look at if for you, just give me a call...


Curt's Quick Comment
Remember...if you're on Active Duty your children are residents of the state you live in for income tax purposes.  They don't get to maintain Texas, Alaska or Florida as their residence.

It probably isn't an issue unless the child has significant income...
"Stretch"-ing Your Wealth to Future Generations


You probably understand that an IRA can be an effective way to save for retirement.  But did you know that it can also be an effective estate-planning tool, allowing you to transfer wealth to future generations while reducing, deferring or even eliminating income taxes on your retirement savings.  Transferring wealth with a multigenerational "stretch" IRA could be an ideal solution for you.

A stretch IRA is a traditional IRA that passes from the account owner to a younger beneficiary at the time of the account owner's death.  Since the younger beneficiary has a longer life expectancy than the original IRA owner, he or she will be able to "stretch" the life of the IRA by receiving smaller required minimum distributions (RMDs) each year over his or her life span.  More money can then remain in the IRA with the potential for continued tax-deferred growth.

Creating a stretch IRA has no effect on the account owner's minimum distribution requirements, which continue to be based on his or her life expectancy.  Once the account owner dies, however, beneficiaries begin taking RMDs based on their own life expectancies.  Whereas the owner of a stretch IRA must begin receiving RMDS after reaching age 70 1/2 beneficiaries of a stretch IRA begin receiving RMDS after the account owner's death.  In either scenario, distributions are taxable to the payee at then-current income tax rates.

Beneficiaries also have the right to receive the full value of their inherited IRA assets by the end of the fifth year following the year of the account owner's death.  However, by opting to take only the required minimum amount instead, a beneficiary can theoretically stretch the IRA -- and tax-deferred growth -- throughout his or her lifetime.

If you do not currently have any IRA beneficiaries, employing the stretch technique by naming a beneficiary could provide significantly more long-term distribution.  So if you're unlikely to deplete your IRA assets during retirement, consider creating a multigenerational stretch IRA.  By doing so, you could help build long-term financial security for a loved one.

Consider the Implications
  • The ability to name new beneficiaries after RMDs have begun means that you can include a child in your stretch IRA strategy regardless of when the child was born.
  • The ability to change beneficiary designations after the account owner's death means that one beneficiary may choose to disclaim his or her own beneficiary status so that more assets pass to another beneficiary.  For example, if an account owner names his son as the primary beneficiary and his grandson as the secondary beneficiary, the son could remove himself as a beneficiary and allow the entire IRA to pass to the grandson.  RMDs would then be based on the grandson's life expectancy, not the son's life expectancy, as would have been the case if the son remained a beneficiary.  (When there is more than one beneficiary, RMDs are calculated using the life expectancy of the oldest beneficiary)
  • The ability of beneficiaries to base RMDs on their own life expectancy means that the money you accumulate in your IRA and leave to heirs has the potential to last longer and produce more wealth for younger generations.

Keep in mind that this information is presented for educational purposes only and does not represent tax or financial advice.  While it's true that recent regulatory changes have indeed made it much easier to incorporate a stretch IRA into your multigenerational financial planning initiatives, it's always a good idea to speak to a tax professional before implementing any new tax strategy.


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From the Financial Presses
Do You Know the Basics of 401(k) Retirement Plans?
How much do you know about your 401(k) plan? Often, even though employer-sponsored retirement plans may make up the bulk of employees' retirement savings, participants understand less than they need to about how this savings vehicle works. Here's a primer covering 10 crucial facts (Read More Here)

How To Drill For Top Tax Benefits In Oil And Gas
Turning a profit in the oil and gas business isn't a straightforward proposition. Most individual investors in the energy market hold interests in limited partnerships, and this can be risky for anyone who lacks experience in this area. But with such risks comes the chance to take advantage of unique tax benefits that apply to oil and gas investments.  (More Here)
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC 's current written disclosure statement discussing our advisory services and fees is available for review upon request.
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