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But there’s a newer version of the IRA that’s only a few years old.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IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.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Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.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. This design is incredible! You definitely know how to keep a reader amused.
    Between your wit and your videos, I was almost moved to start my own blog (well, almost…HaHa!)
    Wonderful job. I really loved what you had to say, and more than that,
    how you presented it. Too cool!

  2. Hi Bro, hairstyles picture Thank you very much for your writing and your article and I wish you continued success. Please try to produce such valuable content in the following processes. In addition to this article, I am very happy to see your unique content.

  3. Simply wish to say your article is as astounding. The clearness to your post
    is simply spectacular and i could suppose you are a professional in this subject.
    Fine together with your permission let me to seize your feed to keep updated with approaching post.
    Thanks one million and please carry on the rewarding
    work.

  6. Hi there just wanted to give you a quick heads up.
    The text in your article seem to be running off the screen in Chrome.
    I’m not sure if this is a formatting issue or something to do with internet browser compatibility but I thought I’d post to let you know.
    The layout look great though! Hope you get the problem solved soon. Cheers

  7. We would like too thnk yyou once again for the beautiful ideas you gave
    Jesse when preparing her post-graduate research as well as, most importantly, for providing all of the ideas inn one blog post.
    If we had known of your web-site a year ago, we would have been saved the useless measures we were taking.
    Thank you very much. http://sheriffpro.ru/bitrix/rk.php?goto=http://silent-darkness.com/smf/index.php%3Faction=profile;u=123011

  9. Hi Bro, hairstyles picture Thank you very much for your writing and your article and I wish you continued success. Please try to produce such valuable content in the following processes. In addition to this article, I am very happy to see your unique content.

  10. Hi Bro, hairstyles picture Thank you very much for your writing and your article and I wish you continued success. Please try to produce such valuable content in the following processes. In addition to this article, I am very happy to see your unique content.

  12. Howdy! I could have sworn I’ve been to this blog
    before but after reading through some of the post I realized it’s new to me.
    Anyhow, I’m definitely delighted I found it and I’ll be bookmarking
    and checking back frequently!

  14. Hi Bro, hairstyles picture Thank you very much for your writing and your article and I wish you continued success. Please try to produce such valuable content in the following processes. In addition to this article, I am very happy to see your unique content.

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

  27. Hi Bro, hairstyles picture Thank you very much for your writing and your article and I wish you continued success. Please try to produce such valuable content in the following processes. In addition to this article, I am very happy to see your unique content.

  28. Hi Bro, hairstyles picture Thank you very much for your writing and your article and I wish you continued success. Please try to produce such valuable content in the following processes. In addition to this article, I am very happy to see your unique content.

  32. Heya i’m for the first time here. I came across this board and
    I find It truly useful & it helped me out a lot.
    I hope to give something back and aid others like you aided me.

  42. Ηello There. I discovered yοur weblog սsing msn. This
    is a really wｅll written article. I’ll make sure to b᧐okmark it ɑnd гeturn to reɑd extra of your useful info.

    Thank yоu for the post. I’ll certaіnly comeback.

  50. Write more, thats all I have to say. Literally, it
    seems as though you relied on the video to make your point.
    You clearly know what youre talking about, why waste your intelligence on just
    posting videos to your blog when you could be giving us something informative to read?

Leave a Reply

Discover more from Small Business Paths

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

Continue reading