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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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. Hi there, You have done a great job. I’ll definitely digg it
    and personally recommend to my friends. I’m sure they
    will be benefited from this web site.

  2. If you wish for to grow your knowledge just keep visiting this web site and be
    updated with the hottest news update posted here.

  3. Pingback: weed shop

  4. Thank you for any other excellkent post. Where else may anyone get that
    type of information in such a perfect means of writing?
    I have a presentation next week, and I’m on the search forr such information.

  5. Thanks a lot for sharing this with all people you really realize what you
    are speaking about! Bookmarked. Please additionally talk over with my web
    site =). We may have a link exchange agreement between us

  8. I like the helpful info you supply to your articles. I will bookmark your blog and take a look at once
    more right here frequently. I am rather sure I will be informed plenty of
    new stuff right here! Best of luck for the following!

  10. Good post but I was wanting to know if you could write a litte more on this subject?

    I’d be very thankful if you could elaborate a little bit further.
    Many thanks!

  18. I just like the helpful info you provide to your articles.
    I’ll bookmark your blog and take a look at again right here frequently.
    I’m quite certain I’ll learn many new stuff right here!
    Good luck for the following!

  30. With havin so much content and articles do you ever run into any issues of plagorism or copyright violation? My blog has a lot
    of unique content I’ve either written myself or outsourced but it looks like a
    lot of it is popping it up all over the web without my permission. Do you know any solutions to help protect against content from being stolen? I’d genuinely appreciate it.

  31. I like the helpful info you provide for your articles.
    I’ll bookmark your blog and test once more right here frequently.
    I am relatively sure I’ll learn plenty of new stuff proper
    here! Good luck for the next!

  35. Pingback: Mens short

  38. I’m really enjoying the design and layout of your site. It’s a very
    easy on the eyes which makes it much more enjoyable for me to come here and
    visit more often. Did you hire out a developer to create your theme?
    Outstanding work!

  40. I’d been honored to get a call coming from a friend when he discovered the important guidelines
    shared on your site. Studying your blog article is a real fantastic experience.

    Many thanks for thinking about readers much like me, and I wish you the best
    of achievements for a professional in this field.

  41. Pingback: gta games to play
  42. Pingback: disney games unblocked
  43. Pingback: off-road games online

  45. Heya i’m for the primary time here. I found this board and
    I find It truly useful & it helped me out much.
    I hope to give something back and aid others like you helped me.

  46. Usually I do not learn post on blogs, but I would like to say that this write-up very pressured me to check out and do so!
    Your writing style has been surprised me. Thank you, very
    nice article.

  49. Pingback: rally gamestop

Leave a Reply

Discover more from Small Business Paths

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

Continue reading