The Seven-Year Essentials — Which Ones Apply to You?

Social Security Benefits Agreement Concept

Have you done your Annual Check-ups? Before the year ends, check out these Seven Essentials  — which ones apply to you and yours?

Last month the curtain came down on the 2021 Tax Year filing. At times it’s in retrospect that we sometimes gain a clearer perspective on how best to incorporate life’s lessons into our daily lives. The gurus refer to this as “in hindsight.” Nevertheless, some among us prefer to operate with “foresight” — knowing in advance what will happen.

The Oxford dictionary definition of hindsight is an understanding of a situation or event only after it has happened or developed. Foresight is the ability to predict (or the action of predicting) what will happen or be needed in the future. So, how do we manage and incorporate the lessons that have been harvested from the past while hoping that the future is more predictable?

In my opinion, one of the better ways to manage is to act on what we know now — since now is the moment we have — while in the meantime, we look with hope to the future.

In this article we will discuss some areas for which you may want to consider performing an annual check-up, that can contribute to your overall well-being. Below, we list seven (7) areas that may interest you. We will get into more detail with the last three (3) – items 5-7. Action is required, so let’s begin.

  1. Health Care Insurance: Enrollment season is now open. Make the changes needed to your health insurance, such as adding or removing a beneficiary, reducing or increasing your coverage, etc.
  2. Flexible Spending: Use up any funds you have in your flexible spending account since you will not be able to carry over any unused portion into 2023. There is no grace period for 2022 — use it or lose it.
  3. Health Savings Account (HSA): Certain life changes can impact your contribution. A divorce or a marriage can impact how much you can spend, so check your account and make necessary changes to reflect your present status.
  4. 529 Plan: These are state-administered savings accounts for education. Consider funding these plans before the year ends. With the low cost of financial assets like stocks, it may be a good time to buy in. The younger the beneficiary, the more leverage for tax-free growth. Check your individual state 529 Plan for the requirements. Please keep in mind that the funds invested in a state 529 Plan can affect certain financial aid. 
  5. Covid-Related Retirement Distribution: If you are one of the many individuals who chose to allocate the 2020 distribution over the three (3) year period, this is the final year.
  6. Social Security Benefits: A tax-imposed contribution towards certain government-administered funds, funded by imposing a tax on certain reported income by individuals and corporations. Do we know how much we have contributed over the years? Do you know that a misspelled name could delay payments?
  7. Unclaimed Funds: Don’t leave money on the table. This is administered by each state and not by the Federal government. NYS has over $17.5B (of which $329.8M has already been reported unclaimed for 2022).

Covid-Related Retirement Distribution

$100,000 is a very big bite out of one’s retirement savings – some of us may have bitten off more than we can chew. In 2020, the government extended a retirement withdrawal lifeline, but who benefited? Those who took a smaller amount seemed to be able to manage the Year 2 tax impact much better. Though we have written about this in the past, the tax impact after year 1 seems to come as a surprise to most individuals who chose the three (3) year allocation. Let’s explain by way of an example:

Matthew withdrew $75,000 in 2020 from his retirement and classified it as a Covid-related distribution. At that time, Matthew withheld 15% of the amount, $11,250, for federal taxes. At the time Matthew was preparing his 2020 tax returns, his accountant informed him that under the CARES Act, he could choose to include the entire $75,000 or allocate the amount over three years for inclusion into income. Matthew chose the 3-year allocation option and as such only $25,000 was included in his income. Considering Matthew’s effective tax rate is 18%, his taxable amount on the $25,000 for year 1 is $6,250, so Matthew is now refunded $5,000 of the $11,250 that was withheld. Sweet, you may agree.

Year 2 – Matthew’s effective tax rate remains the same — 18% — and as such the tax impact of the $25,000 year 2 allocation is $6,250. The issue is that Matthew has no withholding (nor did he increase his contribution to his retirement savings) for the Year 2 allocation so instead of getting a refund, he will have a tax liability at the time his return is prepared.

With Year 3 ahead, there is hope. In hindsight, Matthew can plan better and contribute more to his tax-deferred retirement, to mitigate the tax impact. 

Social Security Benefits (SSB)

First – it is recommended to check our SSB account on an annual basis. We know that our SSB becomes a part of our disposable income and a delay in payment can be a stressful experience for some since this can ultimately delay payment of personal day-to-day expenses. 

In addition, the pandemic has allowed most of us to look at work a little differently. Some employees are willing to trade a portion of their salaries as a  way of balancing that power of work and other areas of their lives. Others are leaning towards an earlier retirement. If you are among those individuals, please consider planning ahead.

As we know, SSB is financed by an imposed tax on the certain income of individuals and corporations. This fund is collected by the U.S. Treasury – and is used to fund the Federal Insurance FICA and SECA which is 15.3% (with some limitations, the social security portion is taxed on $147,000 and $160,200 of income for calendar years, 2022 and 2023, respectively).  Bob Jennings, a practicing CPA and the founder of TaxSpeaker; he is also one of my ‘indirect’ mentors. Instead of reinventing the wheel, with Bob’s permission, I am sharing a few commonly asked questions with answers from one of his teachings. 

  • At what age should I draw my benefits? Ans – First, consider your genetics, personal health, and financial needs. The ideal age is 70, however, an individual can start receiving benefits as early as age 62, and full benefits starting at age 66.  
  • If I am self-employed, is there an “ideal” amount of earnings to maximize my benefit in return for the tax I pay in? Ans –  There are things called “bend points” on which your social security is based. The ideal best “bang for your buck” of earnings vs. benefits is the top of the second bend point, which is about $72,000 for 2022.
  • What kind of benefits does a child qualify for? Ans – Normally a child qualifies for a benefit of 50% of a living parent’s benefit, or 75% of a deceased parent’s benefit.
  • How many years of working is my benefit based upon? Ans – Your benefit is based on the average of your highest 35 years of earnings.
  • Can I increase my benefit with a couple of big years’ earnings? Ans — Not significantly. Because your benefit is based on an average, and because any one year cannot be credited for more than the maximum wage limit for that year — generally — you need at least 10-15 years of big earnings to have a significant effect on your benefit.
  • What is the most common mistake made when drawing Social Security before full retirement age? Ans — A combination of failing to recognize that you (and your spouse) cannot get Medicare before age 65 and the fact that the early signup penalty is the “forever” penalty that affects you and anyone drawing on your account for the rest of everyone’s life.

Unclaimed Funds

Most recently a friend sent me a photo of a letter she received in the mail from the NYS Comptroller’s office, stating that she has unclaimed funds. She wanted to know if the letter was legit. There was a website in the letter, which I was able to find online. It turned out that the letter was legit. After entering the requested information, she found that she did, indeed, have unclaimed funds available.

By law, corporations such as financial institutions, insurance companies, and the courts are among the many organizations required to report dormant accounts to their State Comptroller. In addition, if a check was un-cashed by a payee, the payer is also required to report these checks to the State Comptroller.

Don’t be shy about claiming what is yours. These claims are for individuals and businesses. Most states make the process of claiming the funds rather simple. For example, NYS needs your name and address. Here is the link for the NYS landing page.

Before I close, consider one other annual check-up — the cost of operating your vehicle. The fickleness of gas prices in recent months has many drivers considering switching to electric vehicles (EV).  There is a decent tax incentive — up to $7,500 per vehicle — for the purchase of qualified EVs. You may already know that the state of California is making it mandatory to eliminate gas-powered vehicles by 2035.

In closing, most of us are notorious procrastinators. For some strange reason, there is a little voice in our head that tells us we have more time. Other voices are constantly nudging us to get it done. In my opinion, the longer we delay taking action, the bigger the problem or project appears to be. Let’s resolve to be more gentle with ourselves and simply get it done. My hope is that where applicable, you (and I) don’t delay in acting on the above.

Before you go, below are two quotes that may be worth reading — and fitting for this article.

Stuart Bowen, an American attorney who served under two administrations, wrote, “One day’s delay is another day’s lack of progress.” The great King Solomon (known to be one of the wisest kings who ever lived) reminds us in the book of Ecclesiastes that there is a season for everything — and we have a limited time for each activity.

As always, thank you for reading. If this information has been helpful to you, consider sharing it with others. 

Stay encouraged,


Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.