As you file your taxes this year, there's a simple way to stick it to the taxman...
This strategy is one of the most powerful ways to shelter your wealth from the IRS... grow money for retirement... and have freedom in your investment choices.
But you must act TODAY – April 18, 2017 – or miss out on your chance to shield thousands of dollars from taxes.
It's a type of brokerage account called an individual retirement account, or "IRA."
With this type of tax-deferred account, you park your cash and compound your wealth tax-free. You don't have to pay taxes on capital gains, dividends, or interest income for any stocks, bonds, or funds you hold within it.
Being able to let your wealth compound without the drag that taxes cause can give you hundreds of thousands of dollars more in retirement.
If you don't already have an IRA... or you haven't fully funded yours yet... do so today. It's your last chance to do so for 2016.
Think of it like opening any checking or savings account at your local bank. And to help you out, I'd like to go over some basics of IRAs in this issue ofRetirement Millionaire Daily...
Who Can Open One?
Anyone who has earned income in the current year can open an IRA. You must have taxable income to be eligible.
IRAs are for individuals... Spouses can't be co-owners. If you file taxes jointly, each spouse can open an IRA even if only one earns income.
How Much Can You Put In?
The maximum contribution to an IRA is $5,500 annually for an individual.
If you're older than 50, you can contribute an extra $1,000 for a total of $6,500 (or $13,000 for a couple older than 50 using two IRAs). That extra benefit is so you can "catch up" in your final retirement-savings years.
How Long Do You Have?
It's important to note that you have until the due date for filing your tax returns to make a deposit to the previous year's IRA. Again, that means that TODAY is the last chance to make a contribution that will count for 2016.
If you're contributing for the "prior" year, make sure to tell your plan sponsor (your broker or bank) that you want it to count for the prior year.
Now, everything that we've talked about so far applies to all IRAs... But there are two different types of accounts: a traditional IRA and a Roth IRA.
What's the Difference?
When you contribute to a traditional IRA, you're contributing with pre-tax dollars. Your contributions to a traditional IRA can help lower your tax bill. And a traditional IRA doesn't have limitations based on income.
Sometimes when you prepare your taxes, you'll find you owe a small amount. You can often lower – or even eliminate – that tax liability by making an IRA contribution since you can make it count for the previous year. You'll pay more into the IRA than you will on the tax bill, but at least you'll be keeping the money for yourself instead of giving it to the taxman.
A traditional IRA also lets you compound your wealth from investments tax-free. You don't pay taxes on capital gains, dividends, or interest payments until you start withdrawing from your IRA.
After 59 and a half, you can make withdrawals that the IRS taxes as ordinary income. For example, if you withdraw $50,000 a year, that will count toward your annual income. The IRS will tax you accordingly. And when you reach 70 and a half, you must start making withdrawals known as "minimum required distributions."
If you're older than 70 and a half, you can't contribute to a traditional IRA. And you can't withdraw your money until you reach 59 and a half years of age. If you do withdraw before then, you have to pay the taxes due, plus a 10% penalty (with some exceptions).
A Roth IRA is sort of a flipped version of the traditional IRA. While you don't get a tax break on your income when you contribute, you also don't have to pay taxes when you make withdrawals.
Unlike a traditional IRA, you can contribute to a Roth IRA at any age. And you don't have to take any minimum-required distributions. But there are income restrictions...
Individuals making more than $132,000 aren't eligible to contribute to a Roth IRA in 2016. Next year, that limit goes up to $133,000. And a married person filing jointly can't contribute if his or her household income is more than $194,000 in 2016, and $196,000 in 2017. (If you make slightly below these limits, you may be able to contribute a reduced amount.)
How Do You Know Which One to Open?
A traditional IRA most benefits people who expect to be in a lower tax bracket when they retire than when they are working.
A Roth IRA best works for people in the opposite situation. If you expect that your taxes will be higher as a retiree than as a working person, a Roth is perfect for you.
We often recommend opening both a traditional and a Roth IRA if you are unsure what your tax situation will be in your retirement. That way, you get the benefits of both methods.
Alternatively, a more advanced strategy is to convert a traditional IRA to a Roth. You won't need to pay income taxes on subsequent withdrawals, but you will need to pay a lump-sum tax when you do the conversion. This can get tricky, so we recommend talking with your financial planner about your options.
Where Should You Open an IRA Today?
Opening an IRA is as easy as opening any other brokerage account. You can do it with any broker. I like TD Ameritrade and Fidelity, but I've also heard good things about Interactive Brokers. Of course, we don't have any financial relationship with any broker – we work for you.
When registering, you simply select an IRA as the account type.
It's as simple as that. And it will save you tens of thousands of dollars over just a decade or two of retirement savings.
Of course, the final question is...
Where Should You Invest Your IRA?
The foundation of your IRA should be a strong portfolio of stalwart, blue-chip companies... and preferably ones that pay dividends.
And right now, I've found one of the best ways to get big income in your IRAwithout having to pay extra tax on it.
I'm finishing up my research now...
And I plan to release the full details to my Income Intelligence subscribers on Thursday, April 20.
This may be my biggest income idea to date: the opportunity to collect checks that are three times bigger than you might receive elsewhere...
More important, it's one of the few ways to play what Forbes has called the "incredible shrinking stock market"... the fact that there are fewer listed stocks today on the major exchanges since 1996.
Essentially, Wall Street is "stealing" the world's investments... taking the good stocks for themselves... and putting them into a private sort of market. Typically, only "big players" like pension funds, universities, and hedge funds can then get access.
These private, secretive investors go to what's known as "private equity" to make better-than-average returns. You've probably heard the term before... and you also probably know that these private equity firms generally don't roll out the red carpet for "regular" investors." You have to know the right people... or have a whole lot of money.
But the opportunity I'll detail in two days – Thursday, April 20 – is your way to get access to this market no matter who you know or how much you have in the bank. You can get in on this deal with as little as a few hundred dollars...
With this opportunity, you'll become a partner in a Wall Street kingmaker. It has one of the best records in the world of returning massive returns.
And by putting it into an IRA, you'll receive a double tax advantage. To learn more about this big opportunity – and earn your share of a massive wealth shift – click here.
- You could also get up to $2,000 in tax credit if you contribute to a retirement account. The lower your adjusted gross income, the greater the amount of your credit. If you're a married couple filing jointly, for example, and your income is below $37,000, you could earn 50% of your contributions up to $4,000. The highest income you can have and still qualify for the credit is $61,500. Check out the details here.
- Something different: Veg-O-Matic maker files to go public. But wait, there's more...
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Retirement Millionaire Daily Research Team
April 18, 2017