During a recent “Total Financial Safer Money Hour” on KHTS AM-1220, Santa Clarita financial advisor Arif Halaby discussed how to make smart money moves with a 401(K) plan, and how to avoid paying extra in fees and taxes.

“First of all, in your retirement accounts, when you’re ready to retire and start pulling (money out), you’ve got to look at them being what they are,” said Halaby, a Certified Estate Planner. “They’re pre-tax accounts. That means you’ve never paid taxes on this money.”

Show Host Arif M. Halaby

He cautioned investors that eventually, the IRS will come to collect the taxes they are due.

“You don’t get to (avoid paying) taxes on any money for all time,” said Halaby. “What, do you think the government has a sense of humor? Of course not.”

Halaby’s co-host, Jeff Girard, agreed.

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“I see so many people ignoring that part of the tax conversation,” he said. “It seems like this mystical creature we’re going to have to battle in retirement.”

However, Girard said, this is not actually the case. Making smart decisions while still working could end up saving taxpayers thousands.

Halaby suggested merging 401(K) plans from different jobs and careers into an IRA, or individual retirement account.

“As you merge those retirement accounts together, that now becomes an individual retirement account,” said Halaby. “When you’re ready to retire, you pull that out, wherever you live, whatever your tax bracket is, whatever your situation is, that’s what’s subject to tax.”

He added that keeping money in a 401(K) puts in place new partnerships, with both the government and with private organizations that manage that money.

“If you put money in a 401(K), you are automatically in business, in a partnership, basically, with the IRS,” said Halaby.

A 401(K) is named for the section of the U.S. tax code that governs the retirement accounts. Within that specification, investors are free to move their assets among different financial opportunities. In order to do this, many use services specifically marketed at preparing a 401(K) for retirement by managing the risk on some of those opportunities.

“Risk by itself isn’t all bad,” said Halaby. “But risk with your retirement account means it goes up and down, and you have to think about this from the (paradigm) that if you’re in your late 40s or early 50s, you remember the 90s, when people were earning 20 or 30 percent rates of return.”

Smart investors should ask themselves a few questions about the people who are managing their money, said Girard.

“We think we’re paying a fee for (our money) to be grown, or at least for the oversight of (a) financial professional,” he said. “Did they do something, did they look out for you and say, ‘We’re going to reduce the fees now because you don’t need to grow your money anymore.’’”

The fees he discusses are how the 401(K) providers make money. A small portion of the “bucket of money,” as Halaby calls an investment with these services, gets taken out by the company.  

Banks and 401(K) holders still had infrastructure, such as employees and utilities that had to be paid during the 2008 recession, he said. They paid those fees by raising fees on the accounts they were holding.

“But,” Halaby said, “when the market recovered, the higher fees remained.”

Both Halaby and Girard said to be cautious when allowing others to manage your money, to avoid losing money while the company investing for you continues to take from your account.

These people are “putting your money at risk,” Halaby said, “and when the market goes down, you take all of the loss.”

Total Financial Solutions offers assistance with preparing for retirement and financial planning in Santa Clarita and the surrounding valleys. Santa Clarita financial advisor Arif M. 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. Halaby is also the host of “Total Financial Safer Money Hour” on KHTS AM-1220. Launched in 2004, the show offers listeners from Santa Clarita financial planning tips and guidance for dealing with today’s ever-changing financial needs.  

Total Financial Solutions, Inc.

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Newhall, CA 91321

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800-990-7344