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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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:
Learn from this resource or other sources and go for it!
Hey! Quick question that’s completely off topic.
Do you know how to make your site mobile friendly? My website
looks weird when browsing from my apple iphone. I’m trying to find a theme or plugin that might be able to resolve this problem.
If you have any suggestions, please share. Many thanks!
Having read this I thought it was really enlightening.
I appreciate you spending some time and effort to put this information together.
I once again find myself spending a lot of time both reading and posting comments.
But so what, it was still worthwhile!
Fantastic site you have here but I was curious if you knew of any user
discussion forums that cover the same topics discussed in this
article? I’d really like to be a part of community where I can get suggestions from other experienced
people that share the same interest. If you have any recommendations, please let me know.
Many thanks!
Greetings! Quick question that’s entirely off topic.
Do you know how to make your site mobile friendly?
My weblog looks weird when browsing from my iphone. I’m trying to find a theme or plugin that might be able to fix this issue.
If you have any recommendations, please share. Thanks!
Here is my page – 사설토토먹튀
I like the helpful information you provide in your articles.
I will bookmark your weblog and check again here regularly.
I’m quite sure I will learn many new stuff right here!
Best of luck for the next!
My partner and I stumbled over here coming from a
different website and thought I might as well check things
out. I like what I see so now i am following you.
Look forward to checking out your web page repeatedly.
I am really grateful to the owner of this web page who has
shared this wonderful paragraph at at this time.
Keep on working, great job!
Great beat ! I would like to apprentice whilst you amend your site, how could i subscribe
for a weblog web site? The account aided me a appropriate
deal. I had been a little bit familiar of this your broadcast offered bright clear
idea
This post will assist the internet visitors for creating new website or
even a blog from start to end.
Very nice article, exactly what I was looking for.
I’m gone to say to my little brother, that he should also go to see this web site on regular basis to obtain updated from newest
news update.
Mulai dari pemilihan bibit hingga pemanenan.
This is very interesting, You are a very skilled
blogger. I have joined your rss feed and look forward to
seeking more of your wonderful post. Also, I’ve shared your web site
in my social networks!
my web blog … rb88
This design is steller! You definitely know how to keep a reader amused.
Between your wit and your videos, I was almost moved to start my own blog (well, almost…HaHa!) Excellent job.
I really loved what you had to say, and more
than that, how you presented it. Too cool!
Hi, I do believe this is a great web site. I stumbledupon it 😉
I will revisit once again since I bookmarked it. Money and freedom is the best way to change,
may you be rich and continue to help other people.
Hello colleagues, fastidious paragraph and fastidious urging
commented here, I am really enjoying by these.
It’s perfect time to make some plans for the future and it is time to be happy.
I’ve read this post and if I could I want to
suggest you some interesting things or advice. Perhaps you could
write next articles referring to this article.
I want to read even more things about it!
My partner and I absolutely love your blog and find most of your post’s to be just
what I’m looking for. Do you offer guest writers to write content for you?
I wouldn’t mind publishing a post or elaborating on some
of the subjects you write concerning here.
Again, awesome web log!