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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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!
I think this is among the most vital information for me.
And i am glad reading your article. But wanna remark on few general things, The web site
style is ideal, the articles is really nice : D. Good job, cheers
Hey! I’m at work browsing your blog from my new iphone 4!
Just wanted to say I love reading through your blog and look forward to all
your posts! Keep up the superb work!
Today, I went to the beachfront 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 totally off topic
but I had to tell someone!
I am not sure where you are getting your info, but great topic.
I needs to spend some time learning more or understanding more.
Thanks for magnificent info I was looking for this
info for my mission.
Thanks for finally writing about > The Easy And Legal
Way To Turn Taxable Income Into Tax-Free Income – Small Business Paths < Loved it!
Thank you for the good writeup. It in fact was a amusement
account it. Look advanced to more added agreeable from you!
By the way, how can we communicate?
What’s Happening i’m new to this, I stumbled upon this I
have discovered It positively useful and it has aided me
out loads. I am hoping to give a contribution &
assist other customers like its helped me. Great job.
Howdy! I could have sworn I’ve visited this website before but after going through
some of the articles I realized it’s new to me. Anyways, I’m definitely happy I found it and I’ll be bookmarking it and checking back regularly!
I know this if off topic but I’m looking into starting my own weblog and was
curious what all is required to get set up? I’m assuming having a blog like yours would cost a pretty penny?
I’m not very internet savvy so I’m not 100% certain. Any suggestions
or advice would be greatly appreciated. Many thanks
Good day! This is my first visit to your blog! We are
a collection of volunteers and starting a new initiative in a community in the same niche.
Your blog provided us beneficial information to work on. You have done
a extraordinary job!
Link exchange is nothing else except it is just placing the other person’s website
link on your page at appropriate place and other person will also do
similar for you.
I feel this is among the so much important information for me.
And i am happy reading your article. But should commentary on few general things, The website style is wonderful, the articles is in point of fact excellent :
D. Good activity, cheers
I’ll immediately seize your rss as I can’t to find your email subscription hyperlink or newsletter service.
Do you have any? Kindly permit me realize so that I may just subscribe.
Thanks.
I’m curious to find out what blog system you’re utilizing?
I’m experiencing some small security problems with my latest website and
I’d like to find something more safe. Do you have any recommendations?
Hello! I know this is kind of off topic but I
was wondering if you knew where I could locate a
captcha plugin for my comment form? I’m using the same blog platform as yours and I’m having difficulty finding one?
Thanks a lot!
I don’t even know the way I ended up right here,
however I assumed this publish used to be great.
I do not understand who you’re however certainly you’re going to
a well-known blogger if you happen to aren’t already.
Cheers!
Thhis site wаs… how do you say it? Relevant!!
Finally I’ve found something whicÒ» helped me. Cheers! http://Merkfunds.com/exit/?url=https://www.rob2288.com/
I’m not sure exactly why but this weblog is loading very slow for me.
Is anyone else having this issue or is it a problem on my end?
I’ll check back later on and see if the problem still exists.
Hi just wanted to give you a quick heads up and let you know a few of the pictures aren’t loading correctly.
I’m not sure why but I think its a linking issue.
I’ve tried it in two different web browsers and both show the same results.