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Questioner: David

Question: When I retire, my wife says that my income from social security and/or my employer's 401k retirement plan, EITHER, or BOTH, will be taxed by the federal government. Is this true?

Now, a rumor I have heard. If you are retired, and volunteer 40 hours a week to agencies looking for retirees to do volunteer work, you can deduct from your taxes on your social security and/or your retirement money, what-ever you would have been paid if still working full-time. For example; employed at $10 per hour. Retired, write-off $10 per hour off your taxes on your social security and retirment. Again, is that true?

If true, I will be doing a lot of volunteer work after I retire!

Answer: It is surprising how many folks ask me this question. Needless to say your wife is correct. First and foremost your 401k/IRA will be taxed as income. I am not sure what state you live in but it could be taxed in the state also. In addition, up to 80% of your social security can be taxed depending on your combined income.

In reference to volunteer work, you are just a little off on what can be considered tax deductible. Volunteers in the United States can receive tax deductions from the federal government on many costs associated with volunteering, such as mileage and other travel expenses, paper, copying, convention attendance fees, parking, uniforms (if the volunteer purchases his or her own), etc. These deductions apply ONLY if you are NOT getting reimbursed for these expenses by the organization you are assisting, and you are itemizing on your tax form (not if you use the 1040 EZ form).

Hope this helps. As someone that works with clients daily and helping them with "sleep well at night solutions" so that they are able to retire and do what they want, when they want, and where they want - I beg you not to go at this alone. Please meet and work with a Certified Financial Planner who deals specifically with income distribution at retirement. There are not many of us out there so please be cautious.

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