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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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 really love your site.. Very nice colors & theme. Did you create this site
    yourself? Please reply back as I’m attempting to create my
    own personal website and would like to learn where you
    got this from or what the theme is called. Kudos!

  4. Very good site! I really love how it is simple on my eyes and the articles or blog posts
    are well written. I am wondering how I could be notified
    anytime a new post has been made. I have subscribed to your
    RSS which must do the trick! Have a terrific day!

  5. I’ve read a few just right stuff here. Certainly price bookmarking for revisiting. I wonder how a lot effort you place to create such a wonderful informative web site.

  7. After looking into a number of the articles on your website, I honestly like your technique of blogging.
    I book marked it to my bookmark site list and will be checking back in the near
    future. Take a look at my web site as well and let me know how you
    feel.

  12. Thanks for your marvelous posting! I quite enjoyed reading it, you are a great author.
    I will make sure to bookmark your blog and will eventually come back later in life.

    I want to encourage you to continue your great work,
    have a nice weekend!

  25. Whats up very nice blog!! Guy .. Beautiful .. Wonderful .. I will bookmark your web site and take the feeds also…I’m satisfied to seek out so many helpful info right here in the publish, we’d like develop extra strategies in this regard, thank you for sharing.

  28. Hi there! I could have sworn I’ve been to this site before but after checking through some of the post I realized it’s new to me.
    Nonetheless, I’m definitely delighted I found it and
    I’ll be book-marking and checking back often!

  30. Howdy! I could have sworn I’ve been to this blog before but after
    going through some of the posts I realized it’s new to me.
    Regardless, I’m certainly pleased I came across it and I’ll be bookmarking it and checking back
    often!

  32. Howdy! This post could nnot be written any
    better! Reading throuigh this post reminds me of my good
    old room mate! He always kept chatting about this.

    I will forward this write-up to him. Fairly certain he
    will have a good read. Many thanks for sharing!

  33. Woah! I’m really enjoying the template/theme of this website.
    It’s simple, yet effective. A lot of times it’s very hard to get that “perfect balance” between usability and visual appearance.
    I must say that you’ve done a very good job with this.
    In addition, the blog loads very fast for me on Safari.
    Excellent Blog!

  35. Hey There. I found your blog using msn. This is an extremely well
    written article. I’ll make sure to bookmark
    it and return to read more of your useful info.
    Thanks for the post. I’ll definitely return.

  42. An impressive share! I’ve just forwarded this
    onto a colleague who has been doing a little research on this.
    And he actually ordered me dinner due to the fact that I
    discovered it for him… lol. So allow me to reword this….
    Thanks for the meal!! But yeah, thanx for spending the time to discuss this matter here on your website.

  43. *I don’t even know how I ended up here, but I thought this post was good. I do not know who you are but certainly you are going to a famous blogger if you aren’t already Cheers!

  44. *Not often do I encounter a weblog that is both educated and entertaining, and let me tell you, you may have hit the nail on the head. Your concept is excellent; the issue is something that not sufficient individuals are speaking intelligently about. I am very happy that I stumbled across this in my quest for something relating to this.

  45. Howdy! Quick question that’s entirely off topic. Do you know how to
    make your site mobile friendly? My website looks weird when viewing
    from my iphone 4. 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!

  48. I was questioning if you would like to be a visitor poster on my web site? and in exchange you could possibly embrace a hyperlink your post? Please reply while you get a chance and Ill ship you my contact particulars thanks. Anyway, in my language, there arent much good source like this.

Leave a Reply

Discover more from Small Business Paths

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

Continue reading