Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Three Cheers for Tax Shelters!

Personal_Finance / Taxes Apr 13, 2010 - 08:25 AM GMT

By: Nilus_Mattive

Personal_Finance

Best Financial Markets Analysis ArticleOkay, before you get the wrong idea … today’s article is not going to talk about hiding money in foreign countries or any other strategy that is either suspicious or outright illegal.

Cheating on your taxes is hardly something I would advocate, let alone celebrate.


Sure, I think a lot of our money is wasted because our politicians are the biggest spendthrifts on the planet. And I absolutely know there are simpler, fairer ways to run our internal revenue system than the way we’re currently doing it.

But for this year at least, we’re stuck with the same old convoluted mess of forms, worksheets, and publications. I ought to know since I just got done with my return and it included TEN different forms and schedules that needed to be filled out. (Yes, like a stubborn mule, I insist on doing my own taxes every year.)

At any rate, we can’t change the system nor should we let our fellow citizens suffer while we avoid paying our fair share, even if the whole thing stinks.

However, we can — and must — do everything within the letter of the law to reduce the amounts we owe as individuals. Especially when those same steps will also ensure better retirements for ourselves or better educational opportunities for our children and grandchildren.

The way I look at it, we’re simply fighting paper with paper … and using the system as best we can. So without further ado, here are …

Four Simple Tax Shelters That You Should Consider Today!

#1. 401(k) plansMost employers offer these retirement accounts, and they’re a great way to keep money away from Uncle Sam. That’s because whatever you contribute is taken out of your pre-tax earnings. Not only does that mean you are deferring taxes on the amount contributed, but you also might be bumping yourself into an overall lower tax bracket.

For 2010, most people can put away as much as $16,500. And if you’re over age 50 you may be eligible to contribute an additional $5,500 in catch-up money!

Meanwhile, your investments grow tax-free until you cash out during retirement. Add in the fact that many companies are willing to match some of your contributions and you can see why I think 401(k) participation is a complete no-brainer.

I would also note that self-employed folks should take a serious look at a special class of these accounts, called Solo 401(k)s. They carry MUCH higher contribution limits (as high as $49,000 for high earners under age 50).

#2. Individual retirement accounts (IRAs) — Whether you have access to a 401(k) or not, you can also contribute to an individual retirement account every year. The only provisions: You must have earned income and it must fall within a certain threshold (see my table for the details).

2009 IRA Phaseout Levels

Important: The reason I’m still citing 2009 numbers is because you can still fund an IRA for 2009 up until April 15th! That’s true even if you’ve already filed your taxes, too. In fact, you can even use any tax refund you received.

So if you haven’t done so already, and you’re eligible, strongly consider an IRA today!

For both 2009 and 2010, investors can contribute up to $5,000 annually to their IRA accounts. If you’re at least 50 years old, you can also take advantage of a special catch-up provision and stash away another $1,000.

Just note that you cannot max out both a regular and a Roth IRA in the same tax year. Your total contributions to all IRA accounts (not counting rollovers and such) must fall within the ranges I just cited.

Which is the better choice — a Roth or a regular IRA? Only you can decide based on your eligibility, age, goals, etc. But I will say that the Roth IRA has a few advantages including no required withdrawals, no age restrictions, and no more taxation of any money earned in the account … EVER!

#3. Coverdell Education Savings Accounts — If you have a child or grandchild you’d like to help out, this type of account is a nice little tax-shelter for them. You can put in $2,000 every year for the minor’s education (up until their 18th birthday).

Coverdells operate much like Roth IRAs (they were formerly known as Education IRAs). As long as later withdrawals go to qualified education expenses, your original contributions and any investment returns are not taxed.

The beneficiary of the account has until age 30 to use the funds. After that point, they must either withdraw the money and pay taxes plus a 10 percent penalty or roll the funds into a new Coverdell account for another beneficiary. But in my book, this is a terrific tax shelter for just about any child in your life.

#4. 529 Plans — Again, these are great for parents, grandparents, or anyone else looking to help put a child through college. Like Coverdell accounts, they allow contributions to grow tax deferred. Plus, distributions will be tax free as long as they go to qualified education costs (in this case, it’s only post-secondary education purposes).

In addition, depending on the plan, the future student is not the only one who reaps tax benefits … the contributor can too! See, 529 plans are sponsored by individual states and some will allow residents to write-off the money they put into a plan against their income taxes. Considering that some 529s accept as much as $300,000 in contributions over the life of the account, your tax benefits can be extremely significant.

Also Remember That Dividends Will Still Get You a Major Tax Break Through 2010!

I’m not going to rehash all the reasons I love dividend stocks today (especially for the kind of accounts I described a moment ago!).

Instead, I just want to point out that most dividend payments continue to get taxed at a much lower rate than other investment earnings because of the Jobs and Growth Tax Relief Reconciliation Act of 2003.

For most people, the tax rate on qualified dividends is now just 15 percent. Investors in a lower income bracket actually pay no tax on their dividend income. And these advantages will remain in place at least through this year.

The advantage of this tax break to a taxable income portfolio can be considerable. Say you have $100,000 invested in dividend-paying stocks with an average yield of 4 percent. That’s $4,000 in dividend income every year.

If those payouts were taxed at your ordinary income rate, you could end up giving back as much as $1,400 in taxes (based on the highest bracket of 35 percent).

In contrast, under the lower rate, you would owe only $600. That’s an additional $800 in your pocket!

Based on our country’s current fiscal condition, I won’t guarantee that this unique advantage will continue beyond this year.

But I’m almost certain that — no matter what you and I think about it — overall tax rates are going to continue creeping higher in the years ahead.

So I strongly urge you to consider taking advantage of every legal means you can to shelter your wealth and watch it grow with as little interference from Uncle Sam as you can.

And if you have yet to wade through all those 2009 forms yet, you better get crackin’!

Best wishes,

Nilus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules