Before retirement begins, gather what you need. Put as much documentation as you can in one place, for you and those you love. It could be a password-protected online vault; it could be a file cabinet; it could be a file folder. Regardless of what it is, by centralizing the location of important papers you are saving yourself from disorganization and headaches in the future.

What should go in the vault, cabinet or folder(s)? Crucial financial information and more. You will want to include…

Those quarterly/annual statements. Recent performance paperwork for IRAs, 401(k)s, funds, brokerage accounts and so forth. Include the statements from the latest quarter and the statements from the end of the previous calendar year (that is, the last Q4 statement you received). You don’t get paper statements anymore? Print out the equivalent, or if you really want to minimize clutter, just print out the links to the online statements. (Someone is going to need your passwords, of course.) These documents can also become handy in figuring out a retirement income distribution strategy.

Healthcare benefit information. Are you enrolled in Medicare or a Medicare Advantage plan? Are you in a group health plan? Do you pay for your own health coverage? Own a long-term care policy? Gather the policies together in your new retirement command center and include related literature so you can study their benefit summaries, coverage options, and rules and regulations. Contact info for insurers, HMOs, your doctor(s) and the insurance agent who sold you a particular policy should also go in here.

Life insurance information. Do you have a straight term insurance policy, no potential for cash value whatsoever? Keep a record of when the level premiums end. If you have a whole life policy, you want to keep paperwork communicating the death benefit, the present cash value in the policy and the required monthly premiums in your file.

Beneficiary designation forms. Few pre-retirees realize that beneficiary designations often take priority over requests made in a will when it comes to 401(k)s, 403(b)s and IRAs. Hopefully, you have retained copies of these forms. If not, you can request them from the account custodians and review the choices you have made. Are they choices you would still make today? By reviewing them in the company of a retirement planner or an attorney, you can gauge the tax efficiency of the eventual transfer of assets.¹

Social Security basics. If you haven’t claimed benefits yet, put your Social Security card, last year’s W-2 form, certified copies of your birth certificate, marriage license or divorce papers in one place, and military discharge paperwork or and a copy of your W-2 form for last year (or Schedule SE and Schedule C plus 1040 form, if you work for yourself), and military discharge papers or proof of citizenship if applicable. Social Security no longer mails people paper statements tracking their accrued benefits, but e-statements are available via its website. Take a look at yours and print it out.²

Pension matters. Will you receive a bona fide pension in retirement? If so, you want to collect any special letters or bulletins from your employer. You want your Individual Benefit Statement telling you about the benefits you have earned and for which you may become eligible; you also want the Summary Plan Description and contact info for someone at the employee benefits department where you worked.

Real estate documents. Gather up your deed, mortgage docs, property tax statements and homeowner insurance policy. Also, make a list of the contents of your home and their estimated value – you may be away from your home more in retirement, so those items may be more vulnerable as a consequence.

Estate planning paperwork. Put copies of your estate plan and any trust paperwork within the collection, and of course a will. In case of a crisis of mind or body, your loved ones may need to find a durable power of attorney or health care directive, so include those documents if you have them and let them know where to find them.

Tax returns. Should you only keep last year’s 1040 and state return? How about those for the past seven years? At the very least, you should have a copy of last year’s returns in this collection.

A list of your digital assets. We all have them now, and they are far from trivial – the contents of a cloud, a photo library, or a Facebook page may be vital to your image or your business. Passwords must be compiled too, of course.

This will take a little work, but you will be glad you did it someday. Consider this a Saturday morning or weekend project. It may lead to some discoveries and possibly prompt some alterations to your financial picture as you prepare for retirement.

Citations.
1 – fpanet.org/ToolsResources/ArticlesBooksChecklists/Articles/ Retirement/10EssentialDocumentsforRetirement/ [9/12/11]

2 – cbsnews.com/8301-505146_162-57573910/planning-for-retirement-take-inventory/ [3/18/13]

If you are a planner, you may be interested in the IRS’s announcement in late October regarding annual inflation adjustments for tax year 2014. The adjustments affect more than 40 tax provisions and the tax tables for 2014.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts:

• The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.

• The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.

• The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).

• The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)

• The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).

• The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.

• Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.

• The annual exclusion for gifts remains at $14,000 for 2014.

• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.

• The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.

• The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Recently, the IRS released the 2014 annually adjusted amount for the unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption: $5.34 million (up from $5.25 million in 2013). But even with the rising exemptions, making annual exclusion gifts is still a good idea.

The 2013 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free — without using up any of your gift and estate or GST tax exemption. (The exclusion remains the same for 2014.)

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.

But you need to use your 2013 exclusion by Dec. 31. The exclusion doesn’t carry over from year to year. For example, if you and your spouse don’t make annual exclusion gifts to your granddaughter this year, you can’t add $28,000 to your 2014 exclusions to make a $56,000 tax-free gift to her next year.

Please contact us for ideas on how to make the most of annual exclusion gifts.

The decision to sell a business is one of the most important decisions a business owner will ever have to make and for many franchisees it is an unknown area. Having invested a considerable amount of time and effort in building the business, its sale probably holds the key to a comfortable and secure future.

To minimize pressure and maximize the value of your business, it’s best to start planning for the sale well in advance of the time you actually decide to exit the business. But sometimes that’s not possible.

Here are a few items to consider if you have decided to do a “quick” sale of one of your restaurants.

• Make sure you fully understand how much money you will be walking away with after completing the sale. The prospective buyer may buy the restaurant for the price you are asking, but how much of the money do you get to keep?
  • You need to consider how much “tax basis” you have in the assets you are selling
  • You need to consider how much “tax gain” you will have by selling the restaurant
  • You need to consider the amount of payoff of the loans you have on the restaurant
  • You also need to consider whether the bank will be charging you a breakage fee due to paying off the loan early
• There may be opportunities on your P&L Opportunity Report, but keep in mind that a prospective buyer will have to spend time and money to convert these opportunities into cash flow. Just because an opportunity is there does not mean the prospective buyer is going to pay you for it.  If the cost control problem was that easy to fix, you would have already done it!!
• Consider the cost and timing of future reinvestment into the property. This can have a major impact on your selling price if there is a rebuild or MRP on the horizon. The sooner the major reinvestment occurs, the more impact it will have on your selling price.

If you have questions about any of these suggestions or would like additional information, contact Bruce Berry, director, who works closely with franchise restaurant owner/operators. In the spring/summer issue of this newsletter, we provided suggestions for long-term planning for a sale, in the article Factors to Consider in Selling a Restaurant.