Your Retirement Plan: How To Get Started

The number of people who are financially unprepared for retirement is staggering. One study revealed that more than half of the adults in the U.S. were planning to depend solely on Social Security for retirement income. Another study indicated that the great majority of Americans do not save nearly enough money. This Financial Guide provides you with the information you need to get started on this important task.

Table of Contents

• Estimating Your Retirement Income
• Establishing Goals For Retirement
• Deciding on Investments
• Recommended Books

To enjoy your retirement years, you need to begin planning early. With longer life expectancies and the growing senior population, people need to begin planning and saving for retirement in their 30s or even sooner. Adequate planning can help to ensure that you will not outlive your savings and that you will not become financially dependent on others.

It is never too late to start or to improve a retirement plan. This Financial Guide shows you the basics of retirement planning, and will enable you to get started or to revamp an existing plan. Basically, there are three steps to retirement planning:

1. Estimating your retirement income
2. Estimating your retirement needs
3. Deciding on investments

Tip: In making estimates of future income needs and sources of income, be sure to estimate conservatively. This will ensure that you do not shortchange yourself.

Estimating Your Retirement Income

Most people have three possible sources of retirement income: (1) Social Security, (2) pension payments, and (3) savings and investments. The income that will have to be provided through savings and investments (which you can plan for) can be determined only after you have estimated the income you can expect from Social Security and from any pension plans (over which you have little control).

Social Security

Estimate how much you can expect in the way of Social Security retirement income. To do this, you should file a "Request for Earnings and Benefits Estimate" with the Social Security Administration. This form can be obtained from SSA by calling their toll-free number: 800-772-1213. You can also request a benefits statement online through the Social Security Administrations Web Site.

Planning Aid: You can also request a benefits statement online through the Social Security Administration's Web site.

Note: Many people are being sent estimates of their future Social Security benefits without having to make a request. You may have received such an estimate in the mail.

The amount of Social Security benefits you will receive depends on how long you worked, the age at which you begin receiving benefits, and your total earnings.

If you wait until your full retirement age (65 to 67, depending on your year of birth) to begin receiving benefits, your monthly retirement benefit will be larger than if you elect to receive benefits beginning at age 62. The full retirement age will increase gradually to age 67 by the year 2027.

Caution: Be aware that Social Security benefits may be subject to income tax. The basic rule is that if your adjusted gross income plus tax-exempt interest plus half of your Social Security benefits are more than $25,000 for an individual or more than $32,000 for a couple, then some portion of your Social Security benefit will be subject to income tax. The amount that is subject to tax increases as the level of adjusted gross income goes up.

Related Guide: Also, if you earn income while you are receiving Social Security, your benefit may be decreased. For the specific rule, see the Related Financial Guide: SOCIAL SECURITY BENEFITS: How To Get The Maximum.

Pension Plans

Estimate how much you can expect to receive from a traditional pension plan or other retirement plan. If you are covered by a traditional pension plan and you are vested, ask your employer for a projection of what you can expect to receive if you continue working until retirement age or under other circumstances—e.g., if you terminate before retirement age. You may already have received such an estimate.

If you are covered by a 401(k) plan, a profit-sharing plan, a Keogh plan, or a Simplified Employee Pension, make an estimate of the lump sum that will be available to you at retirement age. You may be able to get help with this estimate from your employer.

Tip: If you are in the military or formerly served in the military, contact the relevant branch of service to find out about retirement benefits.

Establishing Goals For Retirement

Determine how much income you will need (or want) after retirement. Once you have determined this amount, you can figure out how much you will need to put away to have a big enough nest egg to fund your desired income level.

Many people don’t realize that their retirement could last as long as their careers: 35 years or longer. Your nest egg may have to last much longer than you might think. Remember that the earlier you retire, the more you will have to save. If you want to retire at age 55, you’ll have to save a lot more than if you retire at age 65.

A general guideline is that you will want to have at least 70% of whatever income stream you have before retirement. If you have any special needs or desires—e.g., a desire to travel extensively—the percentage should be adjusted upward. The 70% figure is not a substitute for a thorough analysis of your income needs after retirement, but is only a guideline.

Here are some suggestions for estimating how much of an income stream you will want to have coming in after retirement:

Figure Your Current Annual Expenses. The first step in trying to figure out what your annual expenses will be after retirement is to figure what your expenses are now. Take a year’s worth of checkbook, credit card, and savings account records, and add up what you paid for insurance, mortgage, food, household expenses, and so on.

Figure Out How Your Expenses Will Differ After Retirement. After you retire, your expenses will generally be a lot lower than they are while you are working. To help determine how much lower, here are some questions you might ask yourself :

• Will your mortgage be paid off?
• Will you still be paying for commuting expenses?
• How much will you pay for health insurance?

Tip: If you are not among the lucky few that will have post-retirement health insurance coverage from an ex-employer, you will probably pay more for health coverage after you retire and have to take out so-called "Medigap" coverage.

• Will you increase or decrease your life insurance coverage?
• How much will you pay for travel expenses? (Do you want to travel after you retire, either on vacation or to visit relatives? Will you be commuting between a winter or summer home?)
• Will you be spending more on hobbies after retirement?
• Will your children be financially independent by the time you retire or will you have to factor in some sort of support for them?
• Will your income tax bills be the same, lower, or higher?

Tip: If you are planning to retire to another state, take into account the different state taxes you will be paying.

The answers to these questions will help you determine your estimated annual expenses after retirement. Then subtract from this estimate the anticipated annual income from already-viable sources. (Do not subtract the lump-sum payments you expect to receive—e.g., lump sum payments from 401(k) plans, which will be discussed later). The difference is the annual shortfall that will have to be financed by the nest egg you will need to accumulate.

How do you determine how much you need to save each year to accumulate a nest egg of that size by retirement age? You can do this by using the table below (which, assumes an after-tax return of 5% per year). Just multiply the required nest egg by the Savings Multiplier for the number of years until retirement.

Example: You are 40 years old and want to retire at age 65. You determine that you need a nest egg of $350,000 to fund your annual shortfall. To find out how much you must save each year to have that $350,000 nest egg by the time you are 65, multiply $350,000 by the 25-year savings multiplier (2.1%). You will need to save $7,350 (2.1% times $350,000) a year for 25 years.

Subtract from this nest egg any lump sums that you expect to receive at retirement. To project the value at retirement of a present asset (retirement account, savings, investments, etc.), multiply the current value of this asset by the Growth Multiplier for the number of years until retirement.

Example: You already have $75,000 in a 401(k) plan. To find out what that amount will grow to in 25 years, multiply it by the growth multiplier for 25 years. This $75,000 will grow to $254,250 (339% times $75,000) by the time you retire. Subtract this $254,250 from the $350,000 needed in the previous example. This amount ($95,750) is the amount you must accumulate by age 65 to meet the income shortfall. Multiply this $95,750 by the 25-year savings multiplier (2.1%). You now know that, after taking the projected lump sum into consideration, you will still need to save $2,010.75 per year to accumulate $95,750.

Years Until Retirement	Savings Multiplier	Growth Multiplier
5	18.1%	128%
10	8.0%	163%
15	4.6%	208%
20	3.0%	265%
25	2.1%	339%
30	1.5%	432%

Deciding on Investments

Generally, the longer you have until retirement, the more of your savings should be invested in vehicles with a potential for growth. If you are very close to or at retirement, you may wish to put the bulk of your savings into low-risk investments. However, this formula is subject to your own financial profile: your tolerance for risk, your income level, your other sources of retirement income (e.g., pension payments), and your unique needs.

Related Guide: Please see the Financial Guide: INVESTMENT BASICS: What You Should Know.

Very briefly stated, here are the various retirement-savings investments and their pros and cons. They are discussed in much greater depth in the Related FGs.

Tax-Deferred Retirement Vehicles

Each year, maximize your deposits in a 401(k) plan, an IRA, a Keogh plan, or some other form of tax-deferred savings. Because this money grows tax-deferred, returns will be greater. Further, if the amount you put in is deductible, you are reducing your income tax base.

Lowest Risk Investments

Money market funds, CDs, and Treasury bills are the most conservative investments. However, of the three, only the Treasury bills offer a rate that will keep up with inflation. For the average individual saving for retirement, it is recommended that these vehicles make up only a portion of investments.

Related Guide: Please see the Financial Guide: ASSET ALLOCATION: How To Diversify For Maximum Return.

Bonds

Bonds provide a fixed rate of income for a certain period. The income from bonds is higher than income from Treasury bills.

Bonds fluctuate in value depending on interest rates, and are thus riskier than the lowest risk investments. If bonds are used as a conservative investment, it is a good idea to use those of a shorter term, to minimize the fluctuation in value that might occur.

Stocks

Although common stock is riskier than any other investment yet discussed, it offers greater return potential.

Mutual Funds

Mutual funds are an excellent retirement savings vehicle. By balancing a mutual fund portfolio to minimize risk and maximize growth, a higher return can be achieved than with safer investments.

Related Guide: Please see the Financial Guide: INVESTING IN MUTUAL FUNDS: The Time-Tested Guidelines.

Recommended Books

• Larry Burkett, The Complete Guide to Managing Your Money, (Budget Book Service, 1996), ISBN 0884861325.

• Jane Bryant Quinn, Making the Most of Your Money, (Simon & Schuster,1997), ISBN 0684811766.

• C. Frederic Wiegold, Editor, The Wall Street Journal Lifetime Guide to Money, (Hyperion, 1997), ISBN 0786861320.

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Also See...

Planning For Retirement
Developing a Financial Plan: Frequently Asked Questions
Retirement Planner
10 Retirement Saving Tips
Social Security Benefits: How To Get The Maximum Amount
Social Security Benefits: Frequently Asked Questions
Should You Count On Social Security
Social Security Benefits Estimator
Annuities: How They Work and When You Should Use Them
Annuities: Frequently Asked Questions
Variable Annuity Calculator
Investment Options: Frequently Asked Questions
Retirement Plan Distributions: When To Take Them
Retirement Plan Distributions: How To Take Them
Retirement Plan Distributions: Frequently Asked Questions
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Year End Tax Saving Ideas For Individuals

There are a number of steps you might take by year-end to cut your 2009 tax bill, such as deferring income, accelerating deductions and capital gain planning.

Caution: If you expect to be subject to the alternative minimum tax (AMT), you may want to accelerate income and delay deductions. The AMT is expected to impact many more taxpayers in 2009 due to the decrease in the exemption amounts. Please contact us for more information.

Deferring Income

• If you are planning on selling an investment on which you have a gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

• If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. Deferral of tax generally won't work where the bonus is contractually due in 2009.

• If your company grants stock options, it may be wise to wait until next year to exercise the option or sell stock acquired by exercise of an option. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.

• If you're self employed, and can afford the delay in cash inflow, defer sending invoices or bills to clients or customers until the end of December.

Caution: Keep an eye on the estimated tax requirements.

Accelerating Deductions

• Pay a state estimated tax installment in December instead of at the January due date. However, the payment should be based on a reasonable estimate of your state tax.

• Pay your entire property tax bill, including installments due in year 2010, by year-end (not applicable to mortgage escrow accounts).

• Try to bunch "threshold" expenses, such as medical expenses and miscellaneous itemized deductions. (Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income.) By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction. For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

Caution: In most cases, credit cards charges are considered paid in the year of the charge regardless of when you pay on the card. This, however, does not apply to store revolving credit cards. If you charge expenses on a Wal-Mart store credit card, the deduction can not be claimed until the bill is paid.

In the case of tax benefits that are phased out if you have more than a certain level of adjusted gross income (AGI), a strategy of deferring income and accelerating deductions may also allow you to claim larger deductions, credits, and other tax breaks for 2009. The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Tip: Deferring income into 2010 is an especially good idea for taxpayers who anticipate being in a lower tax bracket next year, generally because of much-reduced income or much-increased deductible expenses.

Tip: It may pay to accelerate income into 2009 if your marginal tax rate is much lower this year than it will be next year.

Tip: If you have a sum of income coming in that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method. Call us for additional support regarding estimated taxes.

Caution: Alternative Minimum Tax no longer just impacts the wealthy! Do not overlook the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2009.

Due to recent tax policy, the AMT will impact many more taxpayers than ever before due to the reduction in the exemption amounts. The problem is that the tax is not indexed to inflation, and, as a result, growing numbers of middle-income taxpayers have been finding themselves subject to this higher tax.

Items that may affect the AMT include the deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions. Please call us for more information.

Note: AMT Exemption Amounts For 2009

• $46,700 for single and head of household fliers;

• $70,950 for married people filing jointly and for qualifying widows or widowers, and

• $35,475 for married people filing separately.

Tax Credit to Aid First Time Homebuyers

First-time homebuyers should know that this tax credit was amended in 2009 to provide further support for the purchase of a new home.

The tax credit was increased:

• To a maximum credit of $8,000, from $7,500.

• To apply to home purchases before December 1, 2009.

• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar. Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

• The 2009 legislation eliminated the repayment requirements for homes purchased on or after January 1, 2009. Homeowners, however, who sell the house within three years of purchase must repay credit back in full.

Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2009 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.

Make Charitable Contributions

You can donate property as well as money to a charity. A deduction is usually available for the fair market value of the property. However, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses.

Note: A written record of charitable contribution is required in 2009. A donor may not claim a deduction for any contribution of cash, a check or other monetary gift made on or after January 1, 2007, unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit in that you avoid paying capital gains on any profit.

Investment Gains And Losses

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term gains, which are usually taxed at a much higher tax rate (up to 35%) than long-term gains (15%). You might consider, where feasible, trying to reduce all capital gains and generate short-term capital losses up to $3,000.

Tip: If you have a large capital gain this year, consider selling an investment on which you have an accumulated loss. Capital losses are deductible up to the amount of your capital gains plus $3,000.

Tip: After selling securities investment to generate a capital loss, you can repurchase it after 30 days. (If you buy it back within 30 days, the loss will be disallowed.) Or you can immediately repurchase a similar (but not the same) investment, e.g., another mutual fund with the same objectives as the one you sold.

Tip: If you have losses, you might consider selling securities at a gain and then immediately repurchasing them, since the 30-day rule does not apply to gains. That way, your gain will be tax-free, your original investment is restored and you have a higher cost basis for your new investment (i.e., any future gain will be lower).

Note: The maximum long term capital gains tax rate is currently 15%. This is set to rise to 20% in 2011. This potential change in rate in something to think about in your long term investment planning.

Mutual Fund Investors

Before investing in a mutual fund, determine whether there will be a dividend at the end of the year or a dividend that will occur early in the next year but be deemed paid this year. The year-end dividend could make a substantial difference in the tax you pay.

Example: You invest $20,000 in a mutual fund at the end of 2009. You opt for automatic reinvestment of dividends. In late December of 2009, the fund pays a $1,000 dividend on the shares you bought. The $1,000 is automatically reinvested.

Result: You must pay tax on the $1,000 dividend. You will have to take funds from another source to pay that tax because of the automatic reinvestment feature. The mutual fund's long-term capital gains pass through to you as capital gains dividends taxed at long-term rates, however long or short your holding period.

The mutual fund's distributions to you of dividends it receives generally qualify for the same tax relief as long-term capital gains. If the mutual fund passes through its short-term capital gains, these will be reported to you as "ordinary dividends" that don't qualify for relief.

Tip: Wait until after the dividend to buy the shares. (The share net asset value will drop after the dividend is paid.) Alternatively, buy the shares in 2009, but opt to take the dividend in cash instead of having it reinvested.

In spite of these tax consequences, it may be a good idea to buy shares right before the fund goes ex-dividend. For instance, the distribution could be relatively small, with only minor tax consequences. Or the market could be moving up, with share prices expected to be higher after the ex-dividend date.

Tip: To find out a fund's ex-dividend date, call the fund directly.

Year-End Giving To Reduce Your Potential Estate Tax

For many, sound estate planning begins with lifetime gifts to family members, gifts which reduce the donor's assets subject to future estate tax. Such gifts are often made at year-end, in the holiday season, in ways that qualify for exemption from federal gift tax.

Your gifts to any donee are excludable (exempt) from gift tax up to $13,000 a year per donee.

Caution: An unused annual exemption doesn't carry over to later years. To make use of the exemption for 2009, you must make your gift by December 31.

Husband-wife joint gifts to any third person are exempt from gift tax up to $26,000 ($13,000 each). Though what's given may come from either you or your spouse or from both of you, both of you must consent to such "split gifts".

Gifts of "future interests" assets which the donee can only enjoy at some future time (certain gifts in trust, for example) generally don't qualify for exemption. But gifts for the benefit of a minor child can be made to qualify.

Tip: Consider adopting a plan of lifetime giving to reduce future estate tax.

Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift's true value when given.

You may choose to give property that has already appreciated. The idea here is that the donee, not you, will realize and pay income tax on future earnings, and built-in gain on sale.

Gift tax returns for 2009 are due the same date, April 15, 2010, as your income tax return. Returns are required for gifts over $13,000 (including husband-wife split gifts totaling more than $13,000) and gifts of future interests. Though you are not required to file if your gifts do not exceed $13,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not "adequately disclosed".

Tip: Call us if you're considering making a gift of property whose value isn't unquestionably less than $13,000.

Income earned on investments you give to children or other family members is generally taxed to them, not to you. In the case of dividends paid on stock given to your children, they may qualify for the reduced 5% dividend rate.

Caution: In 2009, investment income of a child under age 19 (or full-time students through age 23) is taxed at the parent's top rate, where in excess of $1,800.

Other Year-End Moves

Retirement Plan Contributions. Maximize your retirement plan contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don't already have one. (It need not be actually funded until you pay your taxes, but allowable contributions will be deductible on this year's return.)

If you are an employee and your employer has a 401(k), contribute the maximum amount ($16,500 for 2009 and 2010, plus an additional $5,000 if age 50 or over, assuming the plan allows this much and income restrictions don't apply).

If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $5,000 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch up contribution of $1,000 if age 50 or over.

Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and amounts you withdraw are tax-free when used to pay medical bills.

In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the excess over 7.5% of AGI). For amounts withdrawn at age 65 or later, and not used for medical bills, the HSA functions much like an IRA.

To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and must not be enrolled in Medicare. For 2009, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,150 (single coverage) or $2,300 (family). For 2010, the minimum deductible for an HDHP increases to $1,200 for self-only coverage and $2,400 for family coverage.

Summary

These are just a few of the steps you might take. Please contact us for help in implementing these or other year-end planning strategies that might be suitable to your particular situation.

FIAT EMPIRE

Money, Banking and the Federal Reserve

	18 Financial Tips for Business Owners

1. Employee Stock Plans 2. Succession Plan 3. LLC and LLP Ownerships 4. Avoid Nondeductible Compensation 5. Purchase Corp. COLI 6. SIMPLE Retirement Plan 7. Keogh Retirement Plan 8. Section 179 Expensing 9. Deduction Health Insurance Premiums

10. Review Compensations 11. Don't Overlook Min. Distributions 12. Don't Double Up 13. Filing Requirements 14. Roth IRAs 15. Jointly or Separately? 16. Hobby Loss Rules 17. Post-Death Planning 18. Child Tax Credit

1. Consider establishing an employee stock ownership plan (ESOP).
If you own a business and need to diversify your investment portfolio, consider establishing an ESOP. A properly funded ESOP provides you with a mechanism for selling your shares with no current tax liability. Consult a specialist in this area to learn about additional benefits.

2. Make a succession plan.
Have you provided for a succession plan for both management and ownership of your business in the event of your death or incapacity? Many business owners wait too long to recognize all the benefits from making a succession plan. These benefits include ensuring an orderly transition and ensuring the lowest possible tax cost. Waiting too long can be expensive from a financial perspective (covering gift and income taxes, life insurance premiums, appraiser fees, and legal and accounting fees) and a non-financial perspective (intra-family and intra-company squabbles).

3. Consider the limited liability company (LLC) and limited liability partnership (LLP) forms of ownership.
These entity forms should be considered for both tax and non-tax reasons.

4. Avoid nondeductible compensation.
Compensation can only be deducted if it is reasonable. Recent court-decisions have allowed business owners to deduct compensation when (1) the corporation’s success was due to the shareholder–employee, (2) the bonus policy was consistent, and (3) the corporation did not provide unusual corporate prerequisites and fringe benefits.

5. Purchase Corporate Owned Life Insurance (COLI).
COLI can be a tax-effective tool for funding deferred executive compensation, funding company redemption of stock as part of a succession plan, and providing many employees with life insurance in a highly leveraged program. Consult your insurance and tax advisers when considering this technique.

6. Consider establishing a SIMPLE retirement plan.
If you have no more than 100 employees and no other qualified plan, you may set up a Savings Incentive Match Plan for Employees (SIMPLE) into which an employee may contribute up to $10,000 per year if you're under 50 years old and $12,500 a year if you're over 50. You, as employer, are required to make matching contributions. Talk with a benefits specialist to fully understand the rules and advantages and disadvantages of these accounts.

7. Establish a Keogh retirement plan before December 31st.
If you are self-employed and want to deduct contributions to a new Keogh retirement plan for this tax year, you must establish the plan by December 31st. You don’t actually have to put the money into your Keogh(s) until the due date of your tax return. Consult with a specialist in this area to ensure that you establish the Keogh or Keoghs that maximize your flexibility and your annual contributions.

8. Take advantage of section 179 expensing.
If you meet certain requirements, you may be able to expense up to $108,000 in purchases of qualifying property placed in service during the filing year, instead of depreciating the expenditures over a longer time period.

9. Don’t forget deductions for health insurance premiums.
If you are self-employed (or are a partner or a 2-percent S corporation shareholder–employee), you may deduct 100% of your medical insurance premiums for yourself and your family as an adjustment to gross income. The adjustment does not reduce net earnings subject to self-employment taxes, and it cannot exceed the earned income from the business under which the plan was established. You may not deduct premiums paid during a calendar month in which you or your spouse is eligible for employer-paid health benefits.

10. Review whether compensation may be subject to self-employment taxes.
If you are a sole proprietor, an active partner in a partnership, or a manager in a limited liability company, the net earned income you receive from the entity may be subject to self-employment taxes.

11. Don’t overlook minimum distributions at age 70½ and rack up a 50 percent penalty.
Minimum distributions from qualified retirement plans and IRAs must begin by April 1 of the year after the year in which you reach age 70½. The amount of the minimum distribution is calculated based on your life expectancy or the joint and last survivor life expectancy of you and your designated beneficiary. If the amount distributed is less than the minimum required amount, an excise tax equal to 50 percent of the amount of the shortfall is imposed.

12. Don’t double up your first minimum distributions and pay unnecessary income and excise taxes.
Minimum distributions are generally required at age seventy and one-half, but you are allowed to delay the first distribution until April 1 of the year following the year you reach age seventy and one-half. In subsequent years, the required distribution must be made by the end of the calendar year. This creates the potential to double up in distributions in the year after you reach age 70½. This double-up may push you into higher tax rates than normal. In many cases, this pitfall can be avoided by simply taking the first distribution in the year in which you reach age 70½.

13. Don’t forget filing requirements for household employees.
Employers of household employees must withhold and pay social security taxes annually if they paid a domestic employee more than $1,400 a year. Federal employment taxes for household employees are reported on your individual income tax return (Form 1040, Schedule H). To avoid underpayment of estimated tax penalties, employers will be required to pay these taxes for domestic employees by increasing their own wage withholding or quarterly estimated tax payments. Although the federal filing is now required annually, many states still have quarterly filing requirements.

14. Consider funding a nondeductible regular or Roth IRA.
Although nondeductible IRAs are not as advantageous as deductible IRAs, you still receive the benefits of tax-deferred income. Note, the income thresholds to qualify for making deductible IRA contributions, even if you or your spouse is an active participant in a employer plan, are increasing.

15. Calculate your tax liability as if filing jointly and separately.
In certain situations, filing separately may save money for a married couple. If you or your spouse is in a lower tax bracket or if one of you has large itemized deductions, filing separately may lower your total taxes. Filing separately may also lower the phaseout of itemized deductions and personal exemptions, which are based on adjusted gross income. When choosing your filing status, you should also factor in the state tax implications.

16. Avoid the hobby loss rules.
If you choose self-employment over a second job to earn additional income, avoid the hobby loss rules if you incur a loss. The IRS looks at a number of tests, not just the elements of personal pleasure or recreation involved in the activity.

17. Review post-death planning opportunities.
A number of tax planning strategies can be implemented soon after death. Some of these, such as disclaimers, must be implemented within a certain period of time after death. A number of special elections are also available on a decedent’s final individual income tax return.

18. Check to see if you qualify for the Child Tax Credit.
A $1,000 tax credit is available for each dependent child (including stepchildren and eligible foster children) under the age of 17 at the end of the taxable year. The child credit generally is available only to the extent of a taxpayer’s regular income tax liability. However, for a taxpayer with three or more children, this limitation is increased by the excess of Social Security taxes paid over the sum of other nonrefundable credits and any earned income tax credit allowed to the taxpayer.

For more information concerning these financial planning ideas, please call or email us.

SK Financial Services, P.A.

In Tampa 201 E. Kennedy Blvd., Suite 950 Tampa, FL 33602

In Wesley Chapel 2240 Twelve Oaks Way, Suite 101 Wesley Chapel, FL, 33544

Phone: (813)322-3936
Fax: (813)436-4529
info@skfinancial.com

Contact Us

Record Retention Guide

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Storing tax records: How long is long enough?

April 15 has come and gone and another year of tax forms and shoeboxes full of receipts is behind us. But what should be done with those documents after your check or refund request is in the mail?

Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the "three-year law" and leads many people to believe they're safe provided they retain their documents for this period of time.

However, if the IRS believes you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit. To be safe, use the following guidelines.

Business Records To Keep...	Personal Records To Keep...
1 Year	1 Year
3 Years	3 Years
6 Years	6 Years
Forever	Forever
Special Circumstances

Caution: Identity theft is a serious threat in today's world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you must dispose of these records by shredding them and not disposing of them by merely throwing them away in the trash.

Business Document To Keep For One Year

• Correspondence with Customers and Vendors
• Duplicate Deposit Slips
• Purchase Orders (other than Purchasing Department copy)
• Receiving Sheets
• Requisitions
• Stenographer's Notebooks
• Stockroom Withdrawal Forms

Business Documents To Keep For Three Years

• Bank Statements and Reconciliation's
• Employee Personnel Records (after termination)
• Employment Applications
• Expired Insurance Policies
• General Correspondence
• Internal Audit Reports
• Internal Reports
• Petty Cash Vouchers
• Physical Inventory Tags
• Savings Bond Registration Records of Employees
• Time Cards For Hourly Employees

Business Documents To Keep For Six Years

• Accident Reports, Claims
• Accounts Payable Ledgers and Schedules
• Accounts Receivable Ledgers and Schedules
• Cancelled Checks
• Cancelled Stock and Bond Certificates
• Employment Tax Records
• Expense Analysis and Expense Distribution Schedules
• Expired Contracts, Leases
• Expired Option Records
• Inventories of Products, Materials, Supplies
• Invoices to Customers
• Notes Receivable Ledgers, Schedules
• Payroll Records and Summaries, including payment to pensioners
• Plant Cost Ledgers
• Purchasing Department Copies of Purchase Orders
• Sales Records
• Subsidiary Ledgers
• Time Books
• Travel and Entertainment Records
• Vouchers for Payments to Vendors, Employees, etc.
• Voucher Register, Schedules

Business Records To Keep Forever

While federal guidelines do not require you to keep tax records "forever," in many cases there will be other reasons you'll want to retain these documents indefinitely.

• Audit Reports from CPAs/Accountants
• Cancelled Checks for Important Payments (especially tax payments)
• Cash Books, Charts of Accounts
• Contracts, Leases Currently in Effect
• Corporate Documents (incorporation, charter, by-laws, etc.)
• Documents substantiating fixed asset additions
• Deeds
• Depreciation Schedules
• Financial Statements (Year End)
• General and Private Ledgers, Year End Trial Balances
• Insurance Records, Current Accident Reports, Claims, Policies
• Investment Trade Confirmations
• IRS Revenue Agents' Reports
• Journals
• Legal Records, Correspondence and Other Important Matters
• Minutes Books of Directors and Stockholders
• Mortgages, Bills of Sale
• Property Appraisals by Outside Appraisers
• Property Records
• Retirement and Pension Records
• Tax Returns and Worksheets
• Trademark and Patent Registrations

Personal Document To Keep For One Year

• While it's important to keep year-end mutual fund and IRA contribution statements forever, you don't have to save monthly and quarterly statements once the year-end statement has arrived.

Personal Documents To Keep For Three Years

• Credit Card Statements
• Medical Bills (in case of insurance disputes)
• Utility Records
• Expired Insurance Policies

Personal Documents To Keep For Six Years

• Supporting Documents For Tax Returns
• Accident Reports and Claims
• Medical Bills (if tax-related)
• Property Records / Improvement Receipts
• Sales Receipts
• Wage Garnishments
• Other Tax-Related Bills

Personal Records To Keep Forever

• CPA Audit Reports
• Legal Records
• Important Correspondence
• Income Tax Returns
• Income Tax Payment Checks
• Investment Trade Confirmations
• Retirement and Pension Records

Special Circumstances

• Car Records (keep until the car is sold)
• Credit Card Receipts (keep until verified on your statement)
• Insurance Policies (keep for the life of the policy)
• Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
• Pay Stubs (keep until reconciled with your W-2)
• Property Records / improvement receipts (keep until property sold)
• Sales Receipts (keep for life of the warranty)
• Stock and Bond Records (keep for 6 years beyond selling)
• Warranties and Instructions (keep for the life of the product)
• Other Bills (keep until payment is verified on the next bill)

• Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)

SK Financial Services, P.A.

In Tampa 201 E. Kennedy Blvd., Suite 950 Tampa, FL 33602

In Wesley Chapel 2240 Twelve Oaks Way, Suite 101 Wesley Chapel, FL, 33544

Phone: (813)322-3936
Fax: (813)436-4529
info@skfinancial.com

Contact Us