Posted on by Jim

The Easy And Legal Way To Turn Taxable Income Into Tax-Free Income

This may sound a little strange, but there are actually ways that you can convert your taxable income into non-taxable income. You can also do this without worrying about getting audited by the IRS.

This is one of my favorite ways of dong this: Although this has been a part of our federal income tax code for over 30 years, many people still don’t take advantage of it. So what is it that I am referring to?

The IRA — Individual Retirement Account.

I can hear many of you say right now, “Oh, I know all about that one; what’s so great about an IRA?”? Just give me a little time, and I’ll explain three new benefits that the IRA rules have that you may not know about:

BENEFIT #1: How To Avoid Tax Rather Than Postpone Tax

First. There are actually now two kinds of IRA’s available.

The so-called Traditional IRA is the one that first came out way back in the 1970’s.

But there’s a newer version of the IRA that’s only a few years old. This one is called the Roth IRA. And the difference between these two IRA’s is very significant.
Your traditional IRA contributions are tax-deductible, which result in immediate tax savings. The growth of those contributions is also tax-sheltered while the funds remain in the account, but after some time all tax-deductible Traditional IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.

In other words, Traditional IRA’s offer the opportunity to temporarily postpone taxes.

On the other hand, the Roth IRA offers the opportunity to permanently avoid taxes. With a Roth IRA, you don’t take a deduction for your contributions; instead, you make a contribution with “after-tax” dollars.

Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.

Let me show you an example to demonstrate what I am saying:

Let’s say that you invest $2,000 per year for 20 years into a Roth IRA. At the end of twety years, you will have invested a total of $40,000. Now if that Roth IRA earns an average of 10% per year, that $40,000 will grow into $126,005.

Here is the interesting part: If we assume that the IRA has existed for at least five years, and you are at least 59 ½ years old, you can withdraw the entire $126,005 without paying tax.
On the other hand, if this money had been invested in a Traditional IRA, the entire $126,005 would be subject to income tax when it is taken out.

The $86,005 of growth is magically converted from taxable income status to non-taxable income status. Let’s assume that you are in the 15% federal tax bracket. You could possibly be saving $12,901. If you add whatever state income tax you might have, you could save over $15,000 in taxes.

BENEFIT #2: You can also take An Extra 3 ½ Months To put money into Your IRA.

The deadline for contributing to your IRA is April 15 of the year AFTER the year for which the contribution made.

So for Year 2015, you have until April 18, 2016 to fund your IRA.

If you’ve already invested the maximum (more about that in a moment) by December 31, 2015, then there is no more to do. You can’t put in any more money into the IRA for 2015, but if you haven’t maxed out your IRA, you have until April 18 to do that.

This brings me to:

BENEFIT #3: The Maximum Contribution Amounts have been increasing f
or many years. The most you could put into an IRA was $2,000. Now, the maximum is $5,500. (This assumes that you have at least that much earned income from wages or self-employment income).

And if you are over 50, you can put in another $1,000, bringing the total maximum to $6,500.

A married couple, both age 50 or older, can put a whopping $13,000 per year into a IRA. Not too bad if I say so myself.

Here is a final point about the Roth IRA rules: For a married couple, you can only contribute the maximum of $5,500 or $6,500 if your combined income is less than $183,000.

If you are single or head of household, you can contribute the maximum if your income is less than $116,000.
For most of us who are considered to be in the middle-class who are looking for a perfectly legal way to permanently avoid tax (rather then merely temporarily postpone tax), the Roth IRA is exactly what we need.

How do you get started on this? Well this is the hard part. Let’s examin how to actually implement this tax avoidance strategy.

“We’d like to save as much as we can for our golden years. But $11,000 a year? It’s hard to put aside that kind of money. We need every dollar we make just to pay the bills.” This could be your situtation, but a tax advisor or fund manager might find it easy to lecture you on why you should do it anyway. Realistically though; You’ve got to begin at some point, and you’ve got to start saving something, don’t you?

If you’d like to save for retirement, but think you can’t, it may be because you need to learn how to budget your money correctly.  Also learn about other ways to boost your retirement income, check out this website:

BOOST YOUR RETIREMENT INCOME

Learn from this resource or other sources and go for it!

22,019 Replies to “The Easy And Legal Way To Turn Taxable Income Into Tax-Free Income”

  1. Hllo are using WordPress for your site platform? I’m new to
    the blog world but I’m trying to get started and create my own. Do you
    need any coding expertise to make your own blog?
    Any help would be really appreciated!

  11. We absolutely love your blog and find most of your post’s
    to be precisely what I’m looking for. Do you offer guest writers to write content
    for you personally? I wouldn’t mind writing a post or elaborating on a lot of
    the subjects you write with regards to here. Again,
    awesome blog!

  13. I was curious if you ever considered changing the
    structure of your site? Its very well written; I love what youve got to say.
    But maybe you could a little more in the way of content so people could connect with it better.
    Youve got an awful lot of text for only having 1 or 2 images.
    Maybe you could space it out better?

  14. Hi, I do think this is an excellent website. I stumbledupon it 😉 I may
    revisit once again since I book-marked it. Money and freedom
    is the best way to change, may you be rich and continue to guide others.

  15. Good post. I learn something totally new and challenging on blogs I stumbleupon on a daily basis.
    It’s always useful to read content from other authors and practice something
    from their web sites.

  16. Howdy! This is my 1st comment here so I just wanted
    to give a quick shout out and tell you I genuinely enjoy reading through your posts.
    Can you recommend any other blogs/websites/forums that deal with the same topics?
    Thanks a lot!

  17. Hmm is anyone else encountering problems with the pictures on this blog loading?
    I’m trying to figure out if its a problem on my end or if it’s the blog.
    Any feed-back would be greatly appreciated.

  18. Amazing blog! Is your theme custom made or did you download it from somewhere?
    A design like yours with a few simple tweeks would really make
    my blog shine. Please let me know where you got your theme.
    With thanks

  21. I was curious if you ever considered changing the structure of your website?
    Its very well written; I love what youve got to say. But maybe you could a little more
    in the way of content so people could connect
    with it better. Youve got an awful lot of text
    for only having 1 or 2 pictures. Maybe you could space it out better?

  25. Pretty nice post. I simply stumbled upon your blog and wished to say that I’ve really enjoyed surfing
    around your blog posts. After all I’ll be subscribing to your rss feed and I hope you write again very soon!

  26. Hey would you mind stating which blog platform you’re
    working with? I’m looking to start my own blog in the near future but I’m having a difficult time making
    a decision between BlogEngine/Wordpress/B2evolution and Drupal.
    The reason I ask is because your layout seems different then most blogs and I’m looking for something
    completely unique. P.S Sorry for being off-topic but I had to
    ask!

  28. Hello! I could have sworn I’ve been to this site before but after browsing through some of the posts
    I realized it’s new to me. Regardless, I’m certainly pleased I discovered it and I’ll be book-marking it
    and checking back frequently!

  29. I’m not sure where you are getting your info, but great topic.

    I needs to spend some time learning more or understanding more.
    Thanks for great information I was looking for this information for my mission.

  31. Please let me know if you’re looking for a writer for your
    site. You have some really good posts and I think I would be
    a good asset. If you ever want to take some of the load off, I’d really like to write some material for
    your blog in exchange for a link back to mine. Please shoot me an email if interested.
    Cheers!

  32. I delight in, result in I discovered just what I was taking a look for.
    You’ve ended my 4 day lengthy hunt! God Bless you man. Have a great day.
    Bye

  33. It’s difficult to find knowledgeable people for this topic,
    however, you sound like you know what you’re talking about!

    Thanks

  34. What’s Taking place i’m new to this, I stumbled upon this I have found It positively useful and it has
    aided me out loads. I’m hoping to contribute & assist other customers
    like its helped me. Good job.

  42. That dude isn’t painting! Installing wire for pylon cam.
    I can paint though, but I’m still waiting for @elwood_cody to show
    his painting skills!}

  43. Undeniably believe that that you said. Your
    favorite reason seemed to be on the internet the easiest thing to remember of.
    I say to you, I certainly get irked whilst other
    people think about issues that they plainly don’t realize about.
    You controlled to hit the nail upon the highest and outlined out the entire thing without having side effect ,
    other people can take a signal. Will likely be again to get more.
    Thanks

  44. Excellent web site you have got here.. It’s difficult to find good quality writing
    like yours nowadays. I truly appreciate people like you! Take care!!

  49. Good day! Do you know if they make any plugins to assist with SEO?
    I’m trying to get my blog to rank for some targeted keywords but I’m not
    seeing very good results. If you know of any please share.
    Thank you!

Leave a Reply

Discover more from Small Business Paths

Subscribe now to keep reading and get access to the full archive.

Continue reading