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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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’m really impressed with your writing skills as well
    as with the layout on your weblog. Is this a paid theme or did you customize it yourself?
    Anyway keep up the nice quality writing, it’s rare to
    see a great blog like this one nowadays.

  3. Hey I am so thrilled I found your blog, I really
    found you by mistake, while I was looking on Digg for something else, Nonetheless I am here now and would just like to
    say thanks for a incredible post and a all round interesting blog (I also love the theme/design), I don’t have time to read through it all at the minute but I have saved
    it and also included your RSS feeds, so when I have time I will be back to read much more, Please
    do keep up the awesome jo.

  4. My coder is trying to convince me to move to .net from PHP.
    I have always disliked the idea because of the expenses.
    But he’s tryiong none the less. I’ve been using Movable-type on a number of websites for about
    a year and am anxious about switching to another platform.
    I have heard great things about blogengine.net.
    Is there a way I can transfer all my wordpress content into it?

    Any kind of help would be greatly appreciated!

  5. I’ll immediately grasp your rss feed as I can’t in finding your email subscription hyperlink or newsletter service.
    Do you have any? Kindly let me know so that I may just subscribe.
    Thanks.

  7. 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 sick and tired of WordPress because I’ve had issues with hackers and I’m looking at alternatives for another platform.
    I would be great if you could point me in the direction of a good platform.

  8. Have you ever thought about creating an ebook or guest authoring on other sites?

    I have a blog centered on the same topics you discuss and would love to
    have you share some stories/information. I know my readers would appreciate your work.
    If you’re even remotely interested, feel free to send me an e mail.

  9. Everyone loves what you guys are up too. This type of clever work and reporting!
    Keep up the excellent works guys I’ve added you guys to my personal blogroll.

  11. We’re a group of volunteers and starting a new scheme in our community.
    Your web site provided us with valuable information to work on.
    You’ve done a formidable job and our whole community
    will be thankful to you.

  12. Hello! This is kind of off topic but I need some guidance from an established blog.
    Is it very difficult to set up your own blog? I’m not very techincal but I can figure things out pretty fast.

    I’m thinking about creating my own but I’m not
    sure where to start. Do you have any points
    or suggestions? Cheers

  14. Thanks for some other informative site. The place else may I am
    getting that type of info written in such an ideal manner?
    I have a mission that I’m just now running on, and I’ve been on the glance out for such information.

  15. I don’t know whether it’s just me or if perhaps everybody else encountering problems with your site.
    It looks like some of the text on your content are running off the screen. Can somebody else please
    provide feedback and let me know if this is happening to them
    as well? This may be a problem with my web browser because I’ve had this happen before.
    Many thanks

  19. This is really attention-grabbing, You’re an excessively professional blogger.
    I have joined your feed and stay up for in search of more of your fantastic post.
    Additionally, I’ve shared your site in my social networks

  20. I used to be suggested this website by my cousin. I’m not
    sure whether or not this publish is written by way of him as nobody else recognize such particular about my difficulty.
    You are incredible! Thank you!

  22. Hi there i am kavin, its my first time to commenting anywhere, when i read this piece of writing i thought i could also make
    comment due to this good article.

  23. Hi! I could have sworn I’ve been to this web site before but
    after going through a few of the posts I realized
    it’s new to me. Anyways, I’m certainly delighted I found it and I’ll be bookmarking it
    and checking back frequently!

  27. Pretty nice post. I simply stumbled upon your weblog and wished to mention that I’ve truly enjoyed browsing your blog posts.
    After all I’ll be subscribing in your rss feed and I’m hoping you write again soon!

  28. Hello there! This post could not be written any better!
    Reading through this post reminds me of my previous roommate!
    He continually kept preaching about this.
    I’ll forward this article to him. Fairly certain he’ll
    have a good read. Many thanks for sharing!

  29. Great work! That is the type of information that are meant to be shared around the net.

    Disgrace on Google for no longer positioning this submit upper!
    Come on over and visit my website . Thanks =)

  30. Nice post. I learn something totally new and challenging on websites I stumbleupon every day.
    It will always be helpful to read articles from other writers and
    use something from other web sites.

  31. Nice post. I used to be checking constantly this weblog and I am inspired!
    Very helpful info specifically the remaining section :
    ) I maintain such info a lot. I was seeking this
    particular information for a long time. Thank you and good
    luck.

  35. It’s appropriate time to make some plans for the future and it’s time to be happy.
    I have read this post and if I could I want to suggest you
    some interesting things or advice. Perhaps you can write next articles referring to this article.
    I want to read more things about it!

  36. It is appropriate time to make some plans for the longer term and it’s time to
    be happy. I have read this put up and if I may just I want to counsel you some
    interesting issues or tips. Maybe you can write next articles regarding this article.

    I want to read more things about it!

  38. Howdy! I simply would like to give you a huge thumbs
    up for the excellent info you have here on this post.
    I will be returning to your site for more soon.

  39. I really like what you guys are up too. This kind of clever work
    and reporting! Keep up the excellent works guys I’ve incorporated you guys
    to blogroll.

  40. Simply want to say your article is as astonishing. The clarity in your put up is simply cool
    and that i could think you’re a professional in this subject.

    Well along with your permission let me to clutch your feed to stay up to date with coming near near post.
    Thank you 1,000,000 and please continue the rewarding work.

  42. Hello, I think your website might be having browser compatibility issues.

    When I look at your website in Firefox, it looks fine but when opening
    in Internet Explorer, it has some overlapping.
    I just wanted to give you a quick heads up! Other then that, awesome blog!

  43. Today, I went to the beach with my kids. I found a sea shell and gave it to
    my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She put the shell to her
    ear and screamed. There was a hermit crab inside
    and it pinched her ear. She never wants to go back!

    LoL I know this is completely off topic but I had to tell someone!

  44. Its such as you learn my mind! You appear to grasp
    a lot about this, such as you wrote the e book in it or something.
    I feel that you can do with some p.c. to drive the message house a little bit, but other than that, this is fantastic blog.
    A fantastic read. I will certainly be back.

  46. Attractive portion of content. I just stumbled upon your web site and in accession capital to
    assert that I acquire actually enjoyed account your blog posts.
    Any way I’ll be subscribing to your augment or even I achievement you access consistently fast.

  48. 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 responses would be greatly
    appreciated.

Leave a Reply

Discover more from Small Business Paths

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

Continue reading