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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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. Having read this I thought it was really enlightening.
    I appreciate you spending some time and effort to put this informative
    article together. I once again find myself
    personally spending way too much time both reading and
    leaving comments. But so what, it was still worthwhile!

  2. I just couldn’t leave your site before suggesting hat I actually enjoyed the
    usual info a person supply for your guests? Is going to be back ceaselessly in order to
    check out new posts

  3. Having read this I thought it was very enlightening.
    I appreciate you finding the time and energy to put this article
    together. I once again find myself personally spending a lot of time both reading and leaving
    comments. But so what, it was still worth it!

  4. Appreciating the time and effort you put into your site and in depth
    information you present. It’s great to come across a blog every once in a while that isn’t the same out of date rehashed material.
    Great read! I’ve saved your site and I’m including your RSS feeds to my Google account.

  5. Hello mates, how is all, and what you desire to say regarding this article, in my view its genuinely remarkable
    designed for me.

  6. Hi there to all, how is the whole thing, I think
    every one is getting more from this web site,
    and your views are fastidious in support of new people.

  7. I think this is among the most vital info
    for me. And i am glad reading your article. But want to remark on some general things, The web site style is great, the articles is really nice : D.
    Good job, cheers

  8. Hi, I do believe this is an excellent site. I stumbledupon it 😉 I will revisit yet again since
    I book-marked it. Money and freedom is the greatest way to change, may
    you be rich and continue to guide other people.

  9. It’s really a nice and useful piece of information. I’m satisfied that you
    just shared this helpful info with us. Please stay us up to date like this.
    Thanks for sharing.

  10. I’m more than happy to uncover this page. I need to to thank
    you for your time just for this wonderful read!!
    I definitely appreciated every part of it and i also have you saved to fav to
    look at new things in your site.

  11. I think everything published made a great deal of sense.
    But, what about this? suppose you added a little information? I mean, I don’t wish to tell you how
    to run your blog, but what if you added something that grabbed people’s attention? I mean The Easy And Legal Way To Turn Taxable Income Into Tax-Free Income
    | Small Business Paths is kinda plain. You
    might peek at Yahoo’s home page and watch how they write news titles to grab people
    to click. You might add a related video or a picture or two to get readers excited
    about everything’ve written. In my opinion, it would bring your blog a little livelier.

  12. Do you mind if I quote a couple of your articles 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 users would definitely benefit from some of the information you provide here.
    Please let me know if this ok with you. Thanks a lot!

  13. I like what you guys are usually up too. Such clever work and reporting!
    Keep up the superb works guys I’ve incorporated you guys to
    blogroll.

    Judi Casino

  14. I have been browsing online more than three hours today, yet I never found any interesting article like yours.
    It’s pretty worth enough for me. In my view, if all site owners and bloggers made good content as you did, the
    net will be a lot more useful than ever before.

  15. Its like you read my mind! You appear to grasp so much about this, such as you
    wrote the book in it or something. I think that you could do with some percent to
    pressure the message home a bit, but instead of that, this is magnificent blog.
    An excellent read. I’ll definitely be back.

  16. Greetings from Florida! I’m bored to tears at work so I decided to check out your blog on my iphone
    during lunch break. I love the information you present here and can’t wait to take
    a look when I get home. I’m shocked at how fast your blog loaded on my phone ..
    I’m not even using WIFI, just 3G .. Anyways, awesome site!

  17. I just couldn’t depart your website before suggesting that I extremely enjoyed the usual information an individual supply on your guests?

    Is gonna be back steadily to check up on new posts

  18. I would like to thank you for the efforts you’ve put in writing this site.
    I am hoping to see the same high-grade content
    by you in the future as well. In fact, your creative writing abilities has inspired me to get my
    own, personal blog now 😉

  19. Today, while I was at work, my cousin stole my iPad and tested to see if it can survive a 40
    foot drop, just so she can be a youtube sensation. My apple ipad is now
    destroyed and she has 83 views. I know this is entirely off topic but I had to share it with someone!

  20. Aw, this was an incredibly nice post. Finding the time and actual effort to make
    a great article… but what can I say… I procrastinate a whole lot and never manage to get nearly anything done.

  21. Hi, i read your blog occasionally and i own a similar one and i was just wondering if you get a lot of spam remarks?
    If so how do you stop it, any plugin or anything you can suggest?
    I get so much lately it’s driving me crazy so any assistance is very much appreciated.

  22. Hi excellent website! Does running a blog such as this require a
    massive amount work? I have no understanding of programming but I had been hoping to start
    my own blog soon. Anyways, should you have any suggestions
    or tips for new blog owners please share. I understand this is off
    topic but I just had to ask. Thanks a lot!

  23. Hi there I am so delighted I found your weblog,
    I really found you by error, while I was researching on Google for something else,
    Nonetheless I am here now and would just like to say thanks a lot for a tremendous post
    and a all round interesting blog (I also love the theme/design), I don’t have
    time to look over it all at the moment but I have book-marked it and also included your RSS feeds,
    so when I have time I will be back to read more, Please do keep up the superb work.

  24. Amazing blog! Do you have any hints for aspiring writers?
    I’m planning to start my own website soon but I’m a little lost on everything.

    Would you recommend starting with a free platform like WordPress or
    go for a paid option? There are so many options out there that I’m completely overwhelmed ..

    Any recommendations? Thanks a lot!

Leave a Reply

Discover more from Small Business Paths

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

Continue reading