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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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”

  3. Everything is very open with a very clear description of the issues.
    It was really informative. Your website is useful.
    Thank you for sharing!

  4. This is a very good tip particularly to those new to
    the blogosphere. Simple but very precise info… Thanks for sharing this one.

    A must read article!

  5. I really love your website.. Pleasant colors & theme.
    Did you build this web site yourself? Please reply back as I’m
    hoping to create my own website and would like to find out where you
    got this from or just what the theme is called.
    Thanks!

  7. I like the valuable info you provide in your articles.
    I will bookmark your weblog and check again here regularly.
    I am quite certain I will learn many new stuff right here!
    Good luck for the next!

  8. Having read this I believed it was rather informative.
    I appreciate you spending some time and energy to put this
    content together. I once again find myself spending a lot
    of time both reading and posting comments.
    But so what, it was still worthwhile!

  9. Do you mind if I quote a couple of your posts as long as
    I provide credit and sources back to your webpage? My blog site is in the very same area of interest as yours and my visitors would truly benefit
    from some of the information you provide here. Please
    let me know if this ok with you. Many thanks!

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

  14. Thanks for ones marvelous posting! I certainly enjoyed reading it, you are a great author.I will remember to bookmark your
    blog and may come back someday. I want to encourage continue your great job, have a nice afternoon!

  16. I’ve been surfing online more than three hours these days,
    but I by no means discovered any fascinating article like yours.
    It’s pretty price sufficient for me. In my opinion, if all website owners and
    bloggers made excellent content as you did, the internet will be a
    lot more useful than ever before.

  17. fantastic submit, very informative. I ponder why the opposite specialists of this sector do not understand this.
    You should proceed your writing. I’m sure, you have a great readers’ base
    already!

  18. Excellent goods from you, man. I’ve have in mind your stuff previous
    to and you’re just extremely magnificent. I actually like what you have acquired right
    here, certainly like what you’re saying and the way in which during which you are saying it.
    You are making it entertaining and you continue to care for to keep it sensible.
    I can not wait to read much more from you. That is really a wonderful
    site.

  22. Every weekend i used to pay a visit this site, for the reason that i want enjoyment, for the reason that this this web page conations in fact
    nice funny material too.

  24. I like what you guys are up too. Such clever work and reporting!

    Carry on the superb works guys I’ve incorporated
    you guys to my blogroll. I think it’ll improve the value of my website :).

    Here is my homepage: answer (Hildegarde)

  25. An interesting discussion is worth comment. I believe hat you need to write more aabout this topic, it miht not be a taboo shbject butt usually people don’t speak about sujch topics.

    To the next! All the best!!

    Look into my page :: vol charter

  27. Howdy just wanted to give you a brief 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 browsers and both show the
    same results.

  28. After looking at a few of the blog posts on your website, I really appreciate your technique of blogging.
    I saved as a favorite it to my bookmark webpage list and will be checking back soon. Please check out my website as well and tell me how you feel.

  30. I am really enjoying the theme/design of your site.
    Do you ever run into any internet browser compatibility problems?
    A handful of my blog audience have complained about my website not working correctly
    in Explorer but looks great in Safari. Do you have any tips to help fix
    this issue?

  33. It’s genuinely very complicated in this busy life to listen news on Television, so I only use internet for that reason, and
    obtain the most up-to-date information.

  34. Thank you for another informative blog. The place else could I am getting that kind of info written in such an ideal approach?
    I’ve a project that I am simply now operating on, and
    I’ve been at the glance out for such information.

  35. Hmm it seems like your site ate my first comment (it was super long) so I
    guess I’ll just sum it up what I submitted and say, I’m thoroughly enjoying your blog.
    I as well am an aspiring blog blogger but I’m still new to everything.

    Do you have any helpful hints for inexperienced blog writers?
    I’d definitely appreciate it.

  36. I am really loving the theme/design of your web site.
    Do you ever run into any browser compatibility issues?

    A small number of my blog visitors have complained about my blog
    not operating correctly in Explorer but
    looks great in Chrome. Do you have any advice to help fix this issue?

  38. Hello just wanted to give you a brief heads up
    and let you know a few of the images aren’t loading properly.

    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 outcome.

  42. Hello! Would you mind if I share your blog with my myspace group?
    There’s a lot of folks that I think would really enjoy your content.

    Please let me know. Thanks

  44. Greetings from Idaho! I’m bored to death at work so I decided to browse your site
    on my iphone during lunch break. I love the info
    you present here and can’t wait to take a look when I get home.
    I’m surprised at how fast your blog loaded on my phone .. I’m
    not even using WIFI, just 3G .. Anyhow, excellent site!

  45. I enjoy what you guys are usually up too. This kind of clever work and coverage!
    Keep up the fantastic works guys I’ve included you guys to
    my own blogroll.

  46. Hola! I’ve been reading your site for a long time now and finally got the bravery to go ahead
    and give you a shout out from Huffman Tx! Just wanted to mention keep up the excellent job!

  50. Hi there to every , because I am actually eager of reading this web site’s post to be updated regularly.
    It contains fastidious stuff.

Leave a Reply

Discover more from Small Business Paths

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

Continue reading