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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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. I blog often and I truly appreciate your information. This
    article has truly peaked my interest. I will book mark your
    website and keep checking for new information about once per week.
    I subscribed to your Feed too.

  3. Howdy! Someone in my Myspace group shared this website with us so I came to give
    it a look. I’m definitely enjoying the information. I’m book-marking and
    will be tweeting this to my followers! Terrific blog and
    terrific design.

  4. Thanks for the good writeup. It in truth used to
    be a enjoyment account it. Look advanced to more added agreeable
    from you! By the way, how could we keep in touch?

  7. Hello There. I found your blog using msn. This is an extremely well written article.
    I’ll make sure to bookmark it and come back to read more of your useful information. Thanks for the post.
    I’ll definitely comeback.

  10. Pretty section of content. I just stumbled upon your web site and in accession capital to assert that I get in fact enjoyed account
    your blog posts. Any way I’ll be subscribing to your feeds and even I achievement
    you access consistently fast.

  12. You could certainly see your enthusiasm within the work you write.
    The arena hopes for more passionate writers such as you who are not afraid
    to say how they believe. All the time go after your heart.

  13. Do you have a spam issue on this website; I also am a blogger, and I was wanting to know your
    situation; we have created some nice practices and we are looking to swap solutions with other folks, why not shoot me an e-mail if interested.

  14. First of all I want to say wonderful blog! I had a quick question that I’d like to ask if
    you don’t mind. I was curious to know how you center yourself and clear your thoughts before writing.
    I’ve had a difficult time clearing my thoughts in getting my thoughts out there.
    I truly do enjoy writing however it just seems like the first 10 to 15 minutes are generally
    wasted simply just trying to figure out how to begin. Any recommendations
    or hints? Many thanks!

  17. Write more, thats all I have to say. Literally,
    it seems as though you relied on the video to make your point.
    You clearly know what youre talking about, why throw away your intelligence on just
    posting videos to your site when you could be giving us something enlightening to read?

  18. I was curious if you ever thought of 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 pictures. Maybe you could space it out better?

  21. I truly love your blog.. Great colors & theme. Did you make this website yourself?

    Please reply back as I’m looking to create my own site and would like to know where you got this from or exactly what the theme is called.
    Many thanks!

  22. I was curious if you ever considered changing the page layout 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 two pictures.

    Maybe you could space it out better?

  25. We are a group of volunteers and opening a new scheme in our
    community. Your website provided us with helpful information to work
    on. You have done an impressive process and our whole neighborhood shall be grateful
    to you.

  26. Hi there! I know this is kind of off topic but I was wondering which blog platform are you
    using for this website? I’m getting fed up of WordPress because I’ve had
    problems with hackers and I’m looking at alternatives for another platform.
    I would be fantastic if you could point me in the direction of a good platform.

  27. We’re a group of volunteers and starting a new scheme in our
    community. Your website provided us with valuable information to
    work on. You have done an impressive job and our entire community will
    be thankful to you.

  32. I will right away grasp your rss as I can’t find your email subscription hyperlink
    or e-newsletter service. Do you’ve any? Kindly permit me recognize so
    that I may subscribe. Thanks.

  35. Thanks , I’ve recently been looking for information about this subject for ages and yours is the greatest I have found
    out till now. However, what about the conclusion? Are you
    certain about the supply?

  36. If you would like to improve your knowledge simply keep visiting this site and be updated with the most up-to-date gossip posted here.

  37. Hmm is anyone else experiencing problems with the images on this blog
    loading? I’m trying to determine if its a problem on my end or
    if it’s the blog. Any suggestions would be greatly appreciated.

  38. Please let me know if you’re looking for a article writer for your blog.

    You have some really great articles and I believe I would be a good asset.
    If you ever want to take some of the load off, I’d absolutely love to write
    some material for your blog in exchange for a link back
    to mine. Please blast me an email if interested. Cheers!

  42. Hi, i read your blog occasionally and i own a similar one
    and i was just wondering if you get a lot
    of spam responses? If so how do you protect against it, any plugin or anything you can advise?

    I get so much lately it’s driving me mad so any support is very much appreciated.

  45. Hey I know this is off topic but I was wondering if you knew of
    any widgets I could add to my blog that automatically tweet my newest twitter updates.

    I’ve been looking for a plug-in like this for quite some time and was hoping maybe you would have some
    experience with something like this. Please let me know if you run into anything.
    I truly enjoy reading your blog and I look forward to your
    new updates.

  46. I’m really impressed with your writing skills as well as with the layout on your blog.
    Is this a paid theme or did you customize it yourself? Either way keep up the nice quality writing, it is rare to see a great blog like this
    one these days.

  49. Thanks a lot for sharing this with all folks you actually know what you are talking approximately!
    Bookmarked. Kindly also seek advice from my site =).
    We can have a link exchange contract between us

  50. I really like your blog.. very nice colors & theme.
    Did you make this website yourself or did you hire someone to do it for you?
    Plz respond as I’m looking to construct my own blog and would like
    to know where u got this from. thanks a lot

Leave a Reply

Discover more from Small Business Paths

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

Continue reading