The financial professionals at Total Financial Solutions are reminding residents how important it is to take taxes into consideration when planning for retirement.

“So many times we sit with folks … where people have these misconceptions about retirement, and one of those is about the taxation of their retirement dollars. I think those misnomers are quite costly,” said Jeff Girard, who co-hosts “Total Financial Solutions Safer Money Hour” on KHTS alongside the company’s president/CEO, Arif Halaby.

Many people planning for retirement assume that their social security income will be completely tax-free, but Girard cautioned that this may not always be the case.

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“It really depends on your multiple sources of income,” he explained, noting that if social security is a retiree’s only source of income and they are earning around the national average of $1,100 per month, it probably won’t be subject to taxation. “But there are thresholds,” he added.

For instance, if a retiree is bringing in what the government views as “too much” money from both social security and other sources like a 401(k), then a portion of a retiree’s social security income can be combined with these and subject to taxation, depending on the threshold.

The first threshold typically allows the government to tax 50 percent of a retiree’s social security income, and the second threshold moves up to 85 percent. For a $1,000-per-month social security income, this means that either $500 or $850 could be subject to taxation along with a retiree’s other income sources, according to Girard.

Another factor to consider when it comes to taxation in retirement is that retirees typically have fewer write-offs and deductions available because their children are no longer dependants, their mortgage is often paid off and they have no work-related expenses.

“A lot of people are going to be paying more in taxes, at least when it comes to the deductions that they don’t have anymore,” said Logan Halaby, Arif Halaby’s son. “Suddenly their taxation plans aren’t quite the same as they thought they were.”

Girard also advised keeping in mind whether a person planning for retirement is using a tax deferred account like a traditional IRA or a 401(k). This means that all funds withdrawn from these accounts during retirement are subject to taxation.

“(If) you put money and you set it aside in there, what have we done? We’ve just deferred the taxes,” Girard said. “We have to settle up in the future.”

On the other hand, if a person saving for retirement is using a Roth IRA, which Girard described as the after-tax version of a traditional IRA, then they are paying taxes on it now, but won’t have to again in retirement.

“That means you don’t get the break today, but when do you get the break?” Girard said, noting the tax break comes when the retiree starts pulling funds out.

Though each person planning for retirement will have their own set of unique circumstances when it comes to sources of income, types of retirement accounts and tax bracket, Girard concluded that considering taxation in retirement is vital.

“I can’t tell you how many times somebody’s building and building in their financial life for a number, a lump sum that they’re going to take out in retirement, and they haven’t accounted for that after-tax dollar,” Girard said.

He continued, “I want to caution you when you hear us talking about these in general, these are generalities. We are not tax advisors. We do understand how tax law works and how it coincides with your retirement, and that’s why we bring it up, because I think it is one of the conversations that gets left out.”

Total Financial Solutions offers assistance with preparing for retirement in Santa Clarita and the surrounding valleys. Santa Clarita financial professional Arif Halaby, a Certified Estate Planner, and Total Financial Solutions staff work with people of all ages, helping them protect, grow and preserve their assets through an individualized approach. As a well-known financial professional, Arif Halaby is also the host of “Total Financial Solutions Safer Money Hour” on KHTS AM-1220. Launched in 2004, the show offers listeners retirement planning tips and guidance for dealing with today’s ever-changing financial needs.  

Total Financial Solutions, Inc.

24322 Main Street

Newhall, CA 91321

661-753-9683

800-990-7344

Total Financial Solutions – Newhall

https://www.youtube.com/watch?v=okWGpu4WxnQ

Arif Halaby, Total Financial Solutions, Financial Planning, Planning for Retirement, Retirement Planning