Tag Archives: Retirement Withdrawals

2021 Year-End Tax Planning

Time for Taxes Money Financial Accounting Taxation Concept

{6 minutes to read}  Let’s look – strategically and intentionally.

As we look back, consider the wise words from two individuals who share the same first name:

Warren W. Wiersbe, an American clergyman/biblical teacher wrote, “you do not move ahead by constantly looking in a rear-view mirror. The past is a rudder to guide you, not an anchor to drag you. We must learn from the past but not live in the past.” 

Warren Buffet, any thoughts on when to look back? “In the business world, the rearview mirror is always clearer than the windshield.”

While we wait for the legislators to meet on common ground considering the tax implications for next year, there are some decisions we can make now that could impact our 2021 tax liabilities.

Key Takeaways:

  • Pandemic relief: One that could impact us in 2021 is retirement withdrawals.
  • Larger deduction on meals and cash donations.
  • Pre-tax payroll deductions – update selections.
  • Life-changes decisions, update beneficiaries, consider starting a “will.”
  • Roth conversion – if income is low – considering the proposed increase in taxes. 

First, let’s look back at the 2020 tax year and review some of the items that may impact us in the current year under the Coronavirus Aid, Relief, and Economic Security Act (CARES). The CARES Act offered numerous reliefs to taxpayers. They benefited us for the 2020 tax year, but some have expired. Nonetheless, some of these income types of relief spillover (or change) in 2021 and could create a costly tax impact. Here are a few:

  1. Retirement distribution allocation: Did you withdraw money from your retirement savings in 2020 – and choose to allocate your withdrawal(s) over the 3 years? If yes, there are tax implications on the amount allocated for 2021.
  2. Early withdrawal penalty: In 2020, the early withdrawal penalty was waived, however, if you withdraw retirement funds in 2021, you may be faced with a 10% penalty on the amount – in addition to your other tax liabilities.
  3. Required Minimum Distribution (RMD): This is an age-required distribution that was also waived for 2020, however in 2021 there’s a requirement to take the RMD which is a taxable event. If you feel a little charitable, you can reduce the tax impact by donating directly to an organization –see below.
  4. Unemployment income – If you collect unemployment income in 2021, it is taxable under the federal government and some states. 

Second, let’s look at some temporary deduction benefits that are still available to us:

  • The Consolidated Appropriations Act (2021), known as CAA, was passed by Congress on December 21, 2020, and signed into law on December 27, 2020. The act includes some items that can help reduce our tax liabilities, one of which is the meals deduction.
    • Meals – under the CAA, food, and beverages will be 100% deductible if purchased from a restaurant in 2021 and 2022. In the past, only a 50% deduction was allowed on most meal expenses. Note: It is important to keep itemized receipts in case you are called upon to present them to any of the tax agencies.
  • Tis the season for giving: Under the CARES Act, individuals can deduct up to 100% of their AGI (in the past, only up to 60% was allowed) of cash donations made in 2021. Corporations can deduct up to 25% (in the past only 10% was allowed).

Third, here is a shortlist of moves you can still make in 2021 that could reduce your tax liabilities.

  • Deferred tax on retirement contributions: if your employer plan allows it, consider contributing the maximum to your savings. The IRS limit is $19,500; if you are fifty and over, the max is $26,000.
  • Retirement savings for self-employed: if you have not yet done so, you can set up a retirement plan in 2021 and delay contributing until 2022. Some plans allow this privilege; discuss your options with your financial advisor.
  • Investment loss: Do you have a large amount in harvested (accumulated) capital losses? Consider speaking with your financial advisor about capital gains types of investment strategies.
  • Savings for education: make your state-affiliated 529 Plan contributions before the end of the year.

On a related note, considering the proposed tax increases, if your income is low in 2021, consider a Roth conversion.

Lastly, don’t forget to make some of these life-changes updates:

  • To employees — update your payroll-related withholdings — such as W-4, insurance, 401K, dependent care, HSA/FSA, etc.
  • To all — update your beneficiary information with your financial institutions — with the fickleness of human nature — God only knows the unforeseen events that could impact us, financially.
  • To all — the “will” — consider consulting an attorney to begin the preparation of a will. You may agree with me, that the current pandemic reminds us how fragile we are – and how little control we have over our own lives. You are welcome to reach out to me for a referral. Choose an attorney who is willing to walk you gently through this process.

As I close, let us choose to look back with intent. If you would like to schedule a tax planning consultation, please don’t hesitate to reach out.

Continue to stay well and safe,


Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

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.  

Remembering Ruth Bader Ginsburg

September 25, 2020 Drawing portrait of United States Supreme Court Justice, Ruth Bader Ginsburg, vector illustration.

Remembering Ruth Bader Ginsburg

“Don’t be distracted by emotions like anger, envy, resentment. 

These just zap energy and waste time.

(5 Minutes to Read)  On Friday, September 18th our fellow Jewish Citizens commenced another new year, Rosh Hashanah. This sacred time is marked with prayer and other ceremonial events. On the said day they also lost one of their (and our) own. Supreme Court Judge Ruth Bader Ginsburg (aka “Notorious RBG”), a woman whose shoulders many of us stand on, fought relentlessly for gender equality. 

In all honesty, I didn’t know much about her, but after I learned of her passing I spent a few days watching some of her interviews to learn more about her. Through perseverance and a steadfast commitment from women like Ruth, we have come a long way, haven’t we?

As I reflect on Ruth Bader Ginsburg’s life and legacy, and this sacred time period — I envision a society (a world) of shared responsibility; in which each individual’s sole responsibility is to make a contribution to the better good of mankind as a whole, not just self… Can you visualize that? I can.

Moving along — Taxes

 All extensions due to the Covid-19th impact have expired. 

In this article, I will discuss the CARES act relief for Coronavirus-related distributions (CRDs).

The next income tax filing due date for C-Corporations and Individuals who filed an extension is October 15, 2020. Please remember to file on time to avoid unnecessary penalties and fines; this penalty is an additional penalty and separates from the failure to pay imposed by the federal and states.

As I continue, I would like to address one of the most frequent inquiries that were made during the pandemic; retirement withdrawals (RMD withdrawals are not required for 2020). Unfortunately, many among us have been furloughed, lost our jobs, or have seen our compensation drastically reduced, so the need to tap into retirement savings may be inevitable.

The coronavirus-related distributions (CRDs) allow for a significant amount to be withdrawn from certain qualified retirement savings, during the calendar year 2020 (i.e. between January 1 and December 31, 2020). 

How can this be done wisely?

1.Take advantage of the waiver of the 10% penalty for early withdrawal of up to $100,000 under the CARES Act if you experienced hardship during the pandemic. (Generally, if a withdrawal is made from certain retirement savings before an individual reaches age 59½, a 10% early withdrawal penalty is imposed.)

2. Consider withdrawals for basic necessities only. Withdraw just for what you need; forget the nice-to-haves. There is no waiver of taxes — federal and state taxes will be due on the money taken from retirement.  

3. Consider withdrawals from gains that have accumulated over time. While this may not be possible for some individuals, consider withdrawing from the amounts that exceed your contribution. By doing so, withdrawals are made from gains only. This is most likely doable for individuals who have been saving for a long time.

4. No required 20% federal tax withholding is necessary, but consider withholding if you don’t plan to repay or replenish the retirement savings account.

5. Consider taking advantage of the three-year payback period. The CARES act offers an option to pay back funds withdrawn from a qualified retirement plan over a three-year period, and without having the amount recognized as income for tax purposes. This option may be possible if there is a certainty in one’s ability to repay. Furthermore, the full financial impact of COVID-19 still remains a mystery. 

6. Other options are available to 401(k) participants (savers). The CARES Act also allows qualified individuals to take a loan from the participant’s vested account balance. You will not owe income tax on the amount borrowed from the 401(k). Please discuss this option directly with your fund administrator.

In closing, a $100,000 withdrawal from savings is a rather hefty amount. Before you act, consider this wise quote penned by Saint Luke as he recapped the words from his Teacher — “don’t begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it?” We are still in a relatively high tax era; and the tax impact will be a factor of your overall income. 

As you and I reflect, let’s contemplate our next best move; then resolve to choose wisely. Let’s remember our shared responsibility to each other and contribute to the better good of another. Envision that!

Stay hope-filled and healthy,


Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com