You can turn taxable income into non-taxable income and not have to worry about being audited by the IRS as a tax reduction strategy. There is one way that not too many people take advantage of that has been part of the tax code for more than thirty years.
What’s that?, you may ask. An Individual Retirement Account or better known as an IRA.
I know, you heard all about an IRA and may be wondering, what’s so great about an IRA? Keep reading to find out about the three recent benefits that an IRA has to offer that you possibly overlooked.
First Benefit: Don’t postpone tax, avoid it instead.
Besides the traditional IRA, there is now a newer version called the Roth IRA for a tax reduction strategy, and there is a big difference.
Contributions made with the traditional IRA are tax deductible, giving you instant tax savings. As the contributions grow and funds remain in the account, it is tax sheltered.
However, once the money is withdrawn from traditional IRA accounts, along with the growth of contributions, it becomes subject to income tax. Traditional IRA’s only postpone taxes temporarily.
A Roth IRA is different as it allows you to avoid taxes permanently. You are not deducted for your contributions as you make a contribution with after tax dollars. Your contributions not only grow tax free, but you will be able to withdraw tax free as well.
Second Benefit: Fund Your IRA With An Extra 3 1/2 Months
April 15 of the year after the year you made the contribution is the deadline to contribute to your IRA. For example, for the year 2019, you have until April 15 2020 to contribute money to your IRA.
However, if you have reached your maximum investment by December, 2019, no more money can be put into the IRA for 2019.
Third Benefit: Amounts for Maximum Contributions Have Been Increased
Tax Reduction Strategy
In the past, the maximum amount you were able to contribute to your IRA was $5,000. That amount has been increased to $6,000 as long as you have earned at least that much from self-employment, wages or salary income and if you are 50 or older, you are allowed another $1,000 making it a total of $7,000.
As a married couple, you can contribute $12,000 a year if you are both 50 years old or older. Pretty good, eh?
A little side note regarding Roth IRA guidelines: Married people can contribute the $5,000 or $6,000 only if your 2019 income combined is less than $159,000. For single, head of household, the contribution is the maximum if you earn less than $101,000.
The Roth IRA seems to be a perfect fit for the middle class as a tax reduction strategy that are interested in a way to avoid tax, rather than only postponing tax temporarily and it is perfectly legal.
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