Stephen Wallick July 3, 2019 No Comments

Are You Overpaying Business Taxes?

If you’re in business, you already know a portion of your annual earnings is going to the IRS. But if you’re like one-third of the country’s small businesses, you fear you’re paying more than required. No matter how many deductions and credits you dig up, you know, deep down, you’re missing at least one or two.

That insecurity only worsens when tax laws change. Even if your business uses professional tax preparation services, there are things you need to do throughout the year to keep your tax bill at a minimum. 

Structure Your Business Correctly

The way your business is structured plays a huge role in how much taxes you’ll pay for that year. This is especially important with the new tax laws, which change taxes for partnerships, S Corporations, and sole proprietors. It’s essential to make sure your business has the right structure as soon as possible. A business structure assessment is a quick and easy way to make sure you have things set up to maximize your tax savings.

Track All Expenses

Many businesses realize they might have missed a deduction or two sometime during tax season, usually when they’re pulling everything together. It can be all too easy to misplace a receipt or lose track of your mileage during a business trip. Make sure you’re set up to capture as many deductions as possible throughout the tax year by choosing apps that make it easy to snap a receipt. Some apps even automatically update your bookkeeping software with the information from the receipts you scan.

Defer Money

If you haven’t already, you should set up a retirement plan. This will not only protect you in your golden years, but it can also provide tax savings. You can contribute up to $6,000 before taxes to a traditional IRA if you’re under the age of 50, and that amount increases to $7,000 for those age 50 and up. You may also be able to tax deduct those contributions, as long as you or your spouse aren’t provided a retirement plan through work. It’s important to look into your retirement savings options and start putting money in there before the tax year is over.

A 15-minute free business structure assessment can help you get a head start on your savings for this tax year. Only ten of these assessments are available, provided on a first come, first served basis. Contact us today to make sure you’re enjoying all the tax savings available to you.

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Stephen Wallick June 25, 2019 No Comments

Announcing Our New Partner, Michael Wallick, MBA

Please join us in welcoming Mike to the Stephen Wallick and Associates team!

Michael Wallick, MBA

Michael Wallick has joined Stephen Wallick and Associates as a partner.  Mike will be opening our new Philadelphia PA Office and will split his efforts between Nashville and Philadelphia.  Mike holds a degree in Management with an emphasis in Accounting and a Masters of Business Administration.  Mike also served in the United States Navy and is a Disabled American Veteran.

Mike began his career in public accounting and over the last decade as a consultant with various national and international companies with a host of accounting and tax-related issues.  Mike is also Certified in Sarbanes Oxley with extensive experience in risk management and compliance in addition to Six-Sigma process improvement methodologies.  He has also conducted Quarterly and Annual reviews to assure that public companies were in compliance with SEC reporting guidelines

A sampling of clients that Mike has worked with include PharmaNet, Penske, Generally Electric, Urban Outfitters,  GSK (Global Pharmaceutical Company ), Flint Group, Cenlar and Lehigh Cement Company to name a few.

Mike is also the founding and managing partner of Phoenix Transitional Living.  PTL currently serves the community with a focus on providing safe, clean and sober living arrangements to anyone in Recovery.  Mike started PTL with the intent of helping Veterans that struggled from addiction as a result of injuries or psychological trauma related to the effects of war and military service and has evolved into helping anyone suffering from Addiction.  As of today, this has grown incredibly into 6 homes through the Philadelphia metropolitan area.

Mike is currently completing his Enrolled Agent licensure and holds other professional certifications.

Mike is married to Sarah and together they are raising their 4 children.

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Stephen Wallick September 19, 2018 No Comments

Credit Myths and Misconceptions

There’s a ton of information out there and most of it is wrong. There’s information about how your credit score is calculated and even worse… how it is impacted by you simply being a consumer.

Let’s look a few of these and try to dispel them

  • Your score drops if you check your own credit.  This widespread credit misconception fools a lot of people, but viewing your own report and score is counted as a “soft inquiry” and doesn’t change the score one way or another. “Hard inquiries” by a lender or creditor, such as those resulting from your applying for credit, can slightly lower your credit score. If you’re shopping for a loan and concerned about harm to your score, know that multiple loan inquiries within a period of a few weeks are usually treated as a single inquiry to minimize impact.
  • It helps to close old accounts.  This credit myth advocates closing old and inactive accounts to hike up your score. However, this might inadvertently have the opposite affect and lower your credit score because now the credit history appears shorter. If you don’t trust yourself to put a card away in a safe place and not use it, then consider canceling newer accounts.
  • Paying off a negative record means it’s taken off your credit report.  Generally, negative records, such as collection accounts and late payments, will remain on your credit reports for up to seven years from the date of first delinquency. Paying off the account sooner doesn’t mean it’s deleted from your credit report; instead it’s listed as “paid.” Of course, it’s smart to pay your debts, both to reduce the total amount of debt you owe and to show your willingness to repay your obligations but expect the negative record to have some effect until it is purged from your report.
  • Co-signing doesn’t mean you’re responsible for the account.  Regardless of this credit myth, if you open an account jointly or co-sign a loan, you will be held legally responsible for the account. Activity on the joint account is displayed on the credit reports of both account holders. If you co-sign for a friend’s auto loan and that person doesn’t make the payments, your credit profile will be hurt and vice versa. The only way to end the dual liability is to have one party refinance the loan or persuade the creditor to formally take you off the account.
  • Paying off a debt boosts your score by 50 points.  Contrary to this credit myth, credit reporting agencies companies determine your credit score via a complex algorithm that uses hundreds of factors and values to calculate it. It’s almost impossible to calculate the difference in points changing one factor might make. It’s wise to pay your bills on time, work to lower your debts and ask that any inaccuracies be corrected. A proven record of sound financial behavior and time will have the most significant impact on your score.

No matter what your score is, the smartest thing you can do with respect to your credit is simple, keep a strong record of on-time payments, keep your credit card balances below 40% of your credit limit, and make sure that the items on your credit score are correct.  Anything and everything else is too hard to manage.

Consult an experienced Enrolled Agent for more tips on how to repair your credit score.

Stephen Wallick May 9, 2018 No Comments

5 Top Tips for Independent Contractors for a Painless & Stress-Free Tax Season

Independent contractors has great advantages while earning a living which includes flexibility of setting their own schedule, the freedom of being their own boss and say yes or no to the work as per your interest and availability. Additionally, the age of the Internet makes this occupation easier and more in demand than ever. But the catch is many think that things tend to get more complicated for independent contractors when it comes to the tax season.

So here are 5 top tips for independent contractors that can make filing taxes as painless and stress-free as possible:

  1. Keep track of your paperwork

Come April 15 the deductions are a key way to trim your tax bill. So keep all the paperwork for your business related travel, gas mileage, office supplies and other business related deductions. The strategy is to keep a file on your desk for these receipts and one in your car and throw the receipts in as you get them. This will save your considerable time and effort. And you will be way ahead of the game in the unlikely event of an audit. 

2. Hunt down your 1099’s

It is small but simple things ensure that each of your employers has sent you a 1099-Misc. If you are a part-time freelancer having just one or two gigs then it is easy for you to keep track of 1099’s. However, if you have gaggle of clients then have a quick checklist of who has and hasn’t sent you the proper form so that you don’t file without all the proper information. You should receive a 1099 by early February in any given year hence, any time past this is when you should start making calls. It is worth noting that clients only require to give you a 1099 if you have earned over $600 from them. The IRS will also get a copy of this form and you will want to ensure that when filing your return your income matches those 1099’s. A big red flag for the IRS is small business owners pocketing more cash than disclosing them.

3. Hire your family members

Another great way to save on your taxes is to hire your spouse or children to do a little work for you. If your spouse works for you then you can get a tax break on medical insurance while if you hire children to do things to help your business then you can in effect move a bit of your income to your children who may not be subject to the unemployment taxes and the social security tax.

Retirement planning

A great way to protect some of your hard earned income is to open a self-employed retirement plan. You are allowed to put in up to 20% of your earnings into this retirement plan called a Simplified Employee Pension Plan or a Keogh plan. You can contribute maximum amount of $52,000 a year to this retirement planning which is a great way to save some money and protect some of your income.

5. Don’t do it yourself

Freelance and independent contractors are as independent as they come. But the tax hurdles for them are far more numerous than for the typical 9-to-5ers and the risk of potential penalties isn’t worth taking. This goes double for people who are new to the gig economy. It is one thing to try to swing it yourself with the tax accounting software once you have been on your own for a few years but if you have just started then don’t do it yourself. Instead seek advice from a professional tax accountant having experience with freelancers, small businesses and independent contractors.

Now that you know the 5 top tips for filing taxes as independent contractors, I hope that doing business on your own doesn’t mean wrestling with your taxes on your own. Get in touch with us to get help with the affordable tax services for keeping your hard-earned income and also keeping yourself on the right side of the IRS.

Stephen Wallick May 2, 2018 No Comments

Understanding the Basics of Payroll Taxes

What are “Payroll Taxes”?

Payroll taxes are taxes that an employer withholds and pays on behalf of his employees. They are based on the wage or salary of the employee. In most countries including the US, the federal authorities and many state governments collect some form of the payroll tax. The governments use revenues from the payroll taxes to fund the programs such as health care, social security, unemployment compensation and workers compensation.

Sometimes, the local governments will collect a small payroll tax to maintain and improve the local infrastructure and programs including:

  • Road maintenance
  • First reports
  • Parks and recreation.

What do the Payroll Taxes Include?

The US federal payroll taxes include the following:

Federal Income Tax Withholding

Taxes withheld from the employee pay for the federal income taxes (FIT) owed by the employees. The amount of FIT is determined by the information provided by the employees on Form W-4 at hire. This form can be changed by the employee at any time and as often as they wish.

Taxes Paid for Social Security and Medicare called FICA (Federal Insurance Contributions Act) Taxes

Employees and employers share these FICA taxes with the employer deducting the employee share which is one-half of the total due from the employee salaries/wages and the employer paying the other half. The payroll taxes also include the amounts payable by the businesses for FICA tax that are equal to the amounts paid by the employees.

The Payroll Tax Process

An employer calculates the gross pay for an employee and, based on the employee’s gross pay, will deduct a specific amount for:

  • Federal income tax based on the W-4 form the employee has completed most recently
  • FICA taxes

FICA Tax Withholding Rates

The employee tax rate for social security is 6.2%. Also, the employer tax rate for social security is 6.2%: 12.4% total. The social security share of the tax is covered each year at a maximum wage subject to social security. The employee tax rate for Medicare is 1.45% amount withheld while the employer tax rate for Medicare tax is also 1.45%: 2.9% total.

Starting from the 2013 tax year, an additional Medicare tax of 0.09% has been imposed on the higher-income individuals. This tax is applicable on income over $200,000 each year and is payable based on the individual’s income level and federal tax filing status. There is no wage limit for the Medicare tax and all covered salaries and wages are subject to the Medicare tax.

How do State Payroll Taxes Work?

The state payroll tax includes the state income tax withholding for those states which imposes the income taxes. Additionally, other state payroll taxes are:

  • State worker’s compensation funds
  • State disability funds (California is one of these states)
  • State unemployment tax funds

Depending on where your employees work the state payroll taxes apply to your business.

How do Employers Pay Payroll Taxes?

The payroll tax process includes several steps. After you have completed the calculation of the amounts for federal income tax withholding and FICA taxes and withheld these amounts from the employee paychecks:

  • After completion of the payroll process, you must calculate the amount you as a business must pay for FICA taxes and set aside those amounts
  • Finally, you must make payments to the IRS either monthly or semi-weekly depending on the size of your total employee payroll
  • You must report on payroll taxes quarterly using Form 941

Please note this information is only intended as the basics of payroll taxes, hence, it is not a tax or legal advice which you can rely upon for your business. Consult a tax or legal professional for proper guidance and specific advice related to your business.

Stephen Wallick April 25, 2018 No Comments

Everything You Need to Know About Estimated Quarterly Payments

The IRS expects to receive tax payments according to the income you are projected to earn in a given year. This is referred to as “pay as you go” system or estimated quarterly payments. These payments are estimated based on your total income from the previous year’s tax return. These quarterly payments help to ensure that you pay no unnecessary penalties at the end of the year for underpayment.

The estimated quarterly payment is a method to pay tax on the income which is not subjected to tax withholding. This can include the income from your business earnings, self-employment, interests, dividends, rent, and other sources.

If you are employed full or part-time, your taxes will be sent directly to the IRS as they are withheld from your paychecks. If you are self-employed or an independent contractor, you need to make tax payments in the form of estimated quarterly payments or estimated tax. Typically, the IRS requires the estimated tax to be paid quarterly, i.e. in 4 equal installments spread throughout the year. If you underpay your estimated quarterly payments, you will have to write a bigger check to the IRS when filing your tax return. If you overpay your estimated tax, you will receive the excess amount as a tax refund which is same as how withholding the tax works.

Here’s a look at who needs to make the estimated quarterly payments and how to make the quarterly payments:

Who Need to Make the Estimated Quarterly Payments?

There are many factors which determine whether you need to make the estimated quarterly payments. As a general rule is if your tax liability is $1,000 or above for the year then you are expected to make the estimated quarterly payments. If you owed more than $1,000 in taxes when you filed your tax return for the previous year then the IRS expects you will either have more tax withheld from your paychecks or that you will make the estimated tax payments the following year.

Generally, the following people are required to make the estimated tax payments:

  • Self-Employed Persons or Sole Proprietor Business Owners

Those who have income from their own business will need to make the estimated quarterly payments if their tax liability is expected to be over $1,000 for the year. This includes both part-time and the full-time enterprises.

  • Partners, Corporations and S Corporation Shareholders

Usually, the business ownership earnings will need estimated quarterly payments. In the case of corporations, the estimated quarterly payments must be made if the corporation is expected to have at least $500 in tax liability.

  • People Who Owed Taxes for the Previous Year

If you owed taxes at the end of previous year, it probably means that too little was withheld from your paychecks or you had other income which increased your tax liability. This is a flag to the IRS that you should be making the estimated quarterly payments.

How to Make Estimated Quarterly Payments?

The IRS Form 1040-ES (Estimated Tax for Individuals) is used for calculating and making the estimated quarterly payments. To determine how much you are required to pay for the estimated quarterly tax, you must compile your income, credits, deductions and the paid taxes- similar to filing a yearly tax return. Typically, you can look at your income/liability numbers from the previous year to gauge what you’ll owe the next year.

To make your estimated quarterly payments, the year is divided into 4 payment periods in which each period has a specific payment deadline. Failing to make the estimated quarterly payments on time can result in the IRS penalties:

  • 1st Quarter: January 1- March 31. Deadline: April 15.
  • 2nd Quarter: April 1-May 31. Deadline: June 16.
  • 3rd Quarter: June 1-August 31. Deadline: September 15.
  • 4th Quarter: September 1- December 31. Deadline: January 15 of the following year.

Note that it is important to make the estimated quarterly payments. Even if you have already missed a few installments of the estimated tax, you should still try making the estimated payments as soon as possible.

Contact me to setup your payment schedule and figure out how much you owe quarterly. 615-326-TAX9

Stephen Wallick March 21, 2018 No Comments

It just got more expensive to owe the IRS money.

April 15th is approaching, and the IRS just announced that the interest rates it charges on past-due taxes will be increasing. Nobody likes to owe the IRS money, but it’s not an uncommon situation — even if you don’t realize it until you fill out your tax return. For these reasons, now is a good time to quickly review what interest and penalties could mean for you if you owe the IRS money.

IRS interest rates are going up

The IRS, which determines its interest rates quarterly, just announced a rate hike for the second quarter of 2018, beginning on April 1. The rate for underpayments and overpayments for individuals will be 5% annually compounded daily.  Rates for corporations are also going up.  If you owe the IRS $10,000, you can now expect to pay about $1.37 per day in interest charges while your debt is outstanding.

This is in addition to penalties you might owe

Keep in mind that the interest charged by the IRS is in addition to any penalties you are assessed for paying or filing late.

The penalty for paying your taxes late is 0.5% of the past-due balance per month or partial month, up to a maximum penalty of 25%.

On the other hand, the failure-to-file penalty is much worse — 10 times worse, to be specific. For each month or partial month you file your tax return after the deadline, you’ll be assessed a 5% penalty, up to the same 25% maximum.

An extension won’t help you avoid interest

As the April 17, 2018, tax deadline is approaching, it’s also important to mention that filing a tax extension does not excuse you from paying your entire tax liability by April 17th. . An extension simply gives you an additional six months to file your return — it does nothing to extend your payment deadline.

So, while a tax extension buys you more time to file your return, keep in mind that interest is charged retroactively to the April 17 tax deadline if it turns out that you owe the IRS money.

If you owe the IRS and have not filed back taxes, Give us a call.  We are Middle Tennessee’s Tax Resolution Experts.

615-326-TAX9

Stephen Wallick January 31, 2018 No Comments

8 Ways to Minimize Taxes

Taxes are an integral part of a civilized society; the law requires us to pay our taxes.  But, there’s nothing in the law that says you can’t utilize certain incentives to lower your tax liability.  Here are eight ways to minimize your taxes. The IRS has limits, but use your creativity and the advice of a tax professional to reach those limits.

1. Tax Minimization, NOT Tax Evasion  

The U.S. Supreme Court reminds us that tax avoidance is not illegal, but tax evasion is  Approach those lines, but do not cross them. There are plenty of ways to legally minimize your taxes.

2. Self-Employed or Rental Property Owners

The best options for lowering taxes usually involve being self-employed or owning rental real estate. There is the opportunity to use depreciation, a calculated non-cash expense, to lower your taxable profits from a business or rental property. You can also find ways to legally shift income.

3. Hiring Family Members 

If you are self-employed, you can hire family members, even minor children. This shifts net profit from your tax bracket to someone who may be in a no-tax bracket. This benefit is multiplies if you help the minor child use income to fund a Roth IRA which gives a head start on retirement savings, or provides a tax-free way to save for college.

4. Medical Expenses 

You can also choose to supplement medical expenses through a Medical Expense Reimbursement Plan (MERP) sponsored by your business. Everyone is going to have medical expenses, but through this incentive, you can now get a legal tax subsidy.

5. Minimize Taxes on a W-2

If you are a W-2 employee, the best options are employer-sponsored benefits. Take advantage of any benefit that shifts income to a tax-deferred vehicle, such as employer-sponsored retirement plans and flexible spending accounts for health care.     

6. Investing Strategies

If you have disposable income, you can consider investing in municipal bonds which produce tax-exempt income. Investing in partnerships, like oil and gas exploration, which produce depreciation and losses can also be used to offset your income.

7. Lower Taxes Through Retirement Accounts

 Lowering taxes in the current year is what most people are concerned about, but it’s also advisable to plan ahead for taxes in retirement. If you put aside money in your IRA or company 401(k) you’re lowering your current tax bill. But you’ll find that the IRS will be waiting to take its share when you start taking distributions in retirement. But, you can lower your future tax bill by diversifying where your retirement money is held. By funding or converting other IRA funds to a Roth IRA, you’ll have the option to withdraw funds tax free in retirement or allow them to continue to grow because you won’t have to take a minimum distribution from these accounts.

8. Estate Planning 

Roth IRAs are preferable compared to traditional IRAs.  Roth IRAs are easier to pass on to heirs, and the tax ramifications of traditional IRAs are more detrimental. Because of income threshold limits, you may not directly qualify for opening or funding a Roth IRA, but there are ways to navigate through the rules to fund a backdoor Roth IRA.

Talk to a tax professional about protecting your wealth and estate planning options.

615-326-TAX9

Stephen Wallick January 10, 2018 No Comments

Be Aware of the Latest IRS Scams

You may wonder how IRS scammers go about stealing your personal information. Well, your personal information is everywhere: on unencrypted hard drives; USB drives; in the cloud; social media; filed with your employer, financial institution. tax preparer, and even the IRS itself. Because income tax returns contain so much valuable personal information, they are a highly desirable target for hacking by identity thieves.

IRS Scammers Use Psychological Manipulation

Scammers take advantage of people’s fear of the IRS! They use is to pressure taxpayers into providing sensitive information by phone, email or postal mail. In addition, they can infect computers with malware that enables them to access people’s files, track keystrokes via links and attachments in emails, or by impersonating tax preparation companies. You can’t possibly prevent all types of tax-related fraud, but you can educate yourself about the latest tax scams so you are less likely to become a victim.

Phone Scams 

Many scammers are carrying out their schemes by phone. They convince callers that they are legitimate IRS employees by using false caller IDs, using false IRS employee badge numbers (or even real ones), and already being in possession of key information about their targets. The IRS refers to these scammers as “aggressive and sophisticated.”

These callers try to convince taxpayers to send immediate payment through a preloaded debit card, gift card or wire transfer. These methods prevent victims from getting their money back, even if they discover they’ve been scammed. Scammers may even ask their targets to hold up their credit cards to the camera in their phones or computer, in order to get their payment information. If the taxpayer doesn’t pay, these callers may threaten arrest, driver’s license suspension, business license suspension or, in the case of immigrant targets, deportation. Scammers may claim that you haven’t paid a nonexistent federal student tax, penalties related to the Affordable Care Act, or back taxes. These scammers are successful enough that they’ve managed to steal millions of dollars from unsuspecting taxpayers over the last few years.

Email Scams

Email scams are another major threat. Scammers will use the IRS logo or tax software company logo. These emails can look quite official, but don’t be fooled! The email may be about your expected refund, your filing status, missing personal information, or e-File PIN. Links in these emails direct you to websites that also look legitimate. By clicking on these links, you are giving the scammers access to all your personal information. These links may also contain malware that can give scammers access to your files or track your keystrokes without your knowledge. You may as well take out a billboard with your personal information on it! Be aware of these scams! Protect yourself and your information!

Stephen Wallick December 27, 2017 No Comments

Large Tax Refunds Can Be Harmful to Your Financial Health

Fallacy of a Fat Tax Refund

Many people think of a large tax return as “found money,” or money that is forgotten because it isn’t seen in a pay check. Others use it to save for a “big ticket” purchase. However, from a financial perspective, it means that you paid more than you had to. A large refund is also a lost opportunity to invest money. Often, tax professionals boast about getting people large returns, but I believe the best value for you is paying as little as possible. I believe the goal of a tax professional should be reducing your overall tax liability, not getting you a large refund.

Is that how the tax thing works? 

I’ve had people sitting across my desk from me, asking this question. It can be difficult to explain why one wouldn’t want a large tax refund. It is important to know that income is taxed differently than wealth. The ultimate goal should be to reduce your tax liability to the point where you pay as little as possible and get no refund. If you pay less in taxes, you can enjoy yourr money throughout the year or use it to build your savings.

Can a large refund be harmful? 

Has your tax preparer ever talked to you about an IRA? This is a beneficial was to reduce taxable income. It is referred to as tax planning. Some people may not be aware may that if they are a W-2 employee, they can request their withholding be adjusted by a specific dollar amount. You can request that this amount be deducted from your check and placed in a n IRA. If you are withholding at a higher rate than necessary, making this change will not lower your gross income, and you will be building savings rather than helping the IRS.

The average tax refund in 2016 was $2,945, so approximately $250 per month was being held by the IRS with no future benefit for the taxpayer.  where that taxpayer received no return and no future retirement benefits. This money is better invested in that account that will grow, tax-free, for your future.

There’s even the potential to earn free money

Many employer-sponsored retirement plans offer a matching contribution up to 50%. So, if you contribute $10,000, your employer will contribute $5,000.  The tax code encourages investing for the future by offering these tax incentives, but it is estimated that fewer than 50% of people who have the opportunity to invest in employer-sponsored retirement plans actually do so. Don’t be one of those people who misses this opportunity!

Behavioral economists use the term “mental accounting” to refer to the people who use large tax refunds as “found money.” But consider this: If the average taxpayer took the $2,500 average refund and invested each year it in an employer-matching retirement fund, a 6% net return over 40 years would result in a $600,000 retirement fund! Now ask yourself, which would you rather have?

Tax Refund or College Planning?

Have you wondered how you’re going to pay for the high cost of college for your child or grandchild? Rather than receiving a large refund, you can invest in one of the many tax-advantaged savings tools, such as a special fund used for qualified education programs. These funds are similar to an IRA in that it is tax-free growth and there is no tax liability if used for qualified education programs.

Rainy Day Funds

Do you have a rainy-day fund? Are you saving for the future? If not, that extra money that is being withheld from your paycheck can be better used to help build one. A Roth IRA offers tax deferral on any earnings deposited into the account. Withdrawals from this account can be considered tax-free if they meet certain restrictions. However, withdrawals before the age of 59 may result in a 10% tax penalty.

Tax laws are always changing and have the potential to impact tax-free retirement funds. It is a good idea to consult a tax professional before investing in or making withdrawals from such accounts.