How to Stretch Your IRA Tax-FREE
(ContentDesk) May 24, 2004 -- Income taxes are a great inhibitor to building wealth. I've talked about the power of stretching an IRA across multiple generations and how it can build tremendous wealth. Now, I'll show you how it can be done income tax-free.Last week I shared a little-known secret of how to legally turn an investment of $3500 per year into millions and millions of dollars. No, it wasn't by winning the lottery! It was through the power of ?stretching' an IRA. If you missed it you have to read it under the article archive at www.guardingyourwealth.com.
(Mr. Voudrie responds to questions from readers on an almost daily basis.
If you would like clear straightforward unbiased answers to your financial questions, contact e-mail protected from spam bots)Most people think that when they inherit an IRA that they have to take all the money out and pay taxes on it right away. But the IRS allows someone who has inherited an IRA to ?stretch' it over their life expectancy. They are only required to take out a small portion each year, allowing the rest to continue growing within the account.
In the last article a greatly oversimplified example was used because of space constraints. I used the example of Sam making a $3500 per year contribution to his IRA for 30 years until he retired. After retirement, he started to withdraw 5% per year until he passed away at age 80. His 50 year-old daughter inherited it, continued to withdraw 5% per year and let the rest grow for 30 years. Assuming the account earned 10%, it could have grown to over $9,000,000 by the time she passed away.Technically, the IRS would require Sam's daughter to withdraw money more quickly from Sam's IRA.
Based on her life expectancy, it would be designed to take the account down to $0 over her lifetime. This changes the amounts. Based on current IRS tables, there would be over $4 million left at her death instead of the $9 million. The income generated by stretching the IRA is enormous. In the example, the IRA would have provided over $1 million in income to Sam and an additional $11 million in income to his daughter.
In other words, the IRA would have generated over $12 million in income and still been worth over $4 million!In this example, we used a Traditional IRA. A Traditional IRA provides a tax deduction when you put money into it, but then you have to pay taxes on every dollar when you take it out. In our example, assuming a 30% income tax rate, approximately $3,600,000 would have been lost to income taxes! If the remaining money in the account was withdrawn it could result in over $1.2 million in additional taxes. So almost $5 million is lost to income taxes!If Sam had used a Roth IRA instead he would not have received a tax write-off each year he invested the $3500. On the other hand, there would not be any income tax on the distributions.
In other words, the $12 million in distributions plus the $4 million left in the account could have all been used free from income tax! That's the power of the Roth IRA.The power to compound your money tax-free is a great way to accumulate wealth. If your money is in a Traditional IRA you may still be able to take advantage of this power by converting it to a Roth IRA. When you do, you'll have to pay taxes on the amount taken out of the Traditional IRA. If you are under 59 ? years old, the IRS waives the normal 10% early withdrawal penalty on the amounts converted.If you are retired and plan on using the money in your Traditional IRA then it probably doesn't make sense to convert it. If you don't anticipate using it and your children understand the power of stretching your IRA, then converting to a Roth IRA might be beneficial.You have the flexibility to spread the conversion over several years, allowing you to time the conversion to take advantage of drops in market value or years in which you are in a lower income tax bracket.The rules surrounding IRAs are complex.
For instance, you can't convert a Traditional IRA to a Roth IRA if your Adjusted Gross Income is $100,000 or more. So make sure to talk with a competent advisor before proceeding or give me a call.Mr. Voudrie is a Certified Financial Planner, a nationally syndicated columnist and the President of Legacy Planning Group, Inc., a Private Wealth Management firm in Johnson City, TN. He can be reached by calling 1-877-827-1463 toll-free, by email at e-mail protected from spam bots or by going to www.guardingyourwealth.com.Looking for an energetic expert who is passionate about financial and wealth management?
Mr. Voudrie is an excellent speaker who will excite and inspire your audience.
Mr. Voudrie is available for a limited number of speaking engagements, television appearances and radio talk shows.
For booking information, contact Christine Lavender at (877) 827-1463 or email e-mail protected from spam bots.Related Articles can be found at www.guardingyourwealth.com under the Guarding Your Wealth Article Archive:How To Make Millions LegallyDon't Be Left Holding The BagShe Came Out Of Nowhere.
IRA Catch Up Limits Help Baby Boomers
If you fall into the Baby Boomer generation, having been born between 1946 and 1964, this 3rd stage of life, retirement,
is right in front of you. Keep in mind, that potentially, this is the longest stage of life, possibly lasting 20-30 years. Dont' fail to prepare for this very important transition into your retirement years.
The prospect of actually becoming a retiree looms larger as the years go by. Fortunately, it's just become a little easier to build savings for your retirement years. Why? Because, starting Jan.
1, you can put in $1,000 in "catch-up" contributions to your traditional or Roth IRA, up from $500 in 2005. So, given the $4,000 annual limit for regular contributions, you can put in a total of $5,000 to your IRA in 2006.
Fully funding your IRA should be one of your top investment priorities. Keep in mind that IRAs offer two major benefits:
Tax advantages - If you have a traditional...
Ira > IRA Catch Up Limits Help Baby Boomers
Invest An IRA in Real Estate - Come to Austin, Texas to Learn About This Growing Trend
Austin, Texas (ContentDesk) April 29, 2006 -- Increasingly, investors are learning about this self-directed IRA option (not normally offered by financial planners, which benefit from commissions from stocks and bonds) and are using their IRAs to capitalize on the real estate market and diversify their retirement portfolios. Asset Exchange invites real estate investors who want to learn how to utilize retirement funds for real estate investments.
Talk with IRA Expert Dan Cordoba and his clients about this growing trend.WHAT: IRA Leverage Seminar - Partnering With Your IRA to Buy Real Estate: A FREE Real Estate Seminar presented by Asset Exchange Strategies, LLC and Mortgages Direct WHEN: May 3, 6:30 p.m. 9 p.m.????????????????
WHERE: Downtown Austin at The Capital Place Hotel (formerly The Crown Plaza Hotel), located at 500 Interstate Highway 35 in Austin Texas WHY: It is within IRS guidelines to purchase, real estate, private businesses and other alternative assets...
Ira > Invest An IRA in Real Estate - Come to Austin, Texas to Learn About This Growing Trend
Roth IRA
The Roth IRA (Individual Retirement Account), named after Senator William V. Roth, Jr., came into effect on January 1, 1998. A result of the Taxpayer Relief Act of 1997, the Roth IRA provides a benefit which is otherwise not available in any other form of retirement savings. If you meet the criteria and subscribe to the Roth IRA, all your savings will be tax-free when you or your beneficiary draws on them.
Another advantage is that you can also avoid the early distribution penalties, which you would otherwise have to pay with any other type of withdrawals.
The picture, however, is not all that rosy. This is because you don't get a deduction when you contribute to the Roth IRS.
But since you already paid the taxes for the money contributed to this account, you don't have to pay any at the time of withdrawal.
You need to meet certain eligibility criteria in order to contribute to the Roth IRA. One basic condition is that you should have earned...
Ira > Roth IRA
IRA Catch Up Limits Help Baby Boomers
If you fall into the Baby Boomer generation, having been born between 1946 and 1964, this 3rd stage of life, retirement,
is right in front of you. Keep in mind, that potentially, this is the longest stage of life, possibly lasting 20-30 years. Dont' fail to prepare for this very important transition into your retirement years.
The prospect of actually becoming a retiree looms larger as the years go by. Fortunately, it's just become a little easier to build savings for your retirement years. Why? Because, starting Jan.
1, you can put in $1,000 in "catch-up" contributions to your traditional or Roth IRA, up from $500 in 2005. So, given the $4,000 annual limit for regular contributions, you can put in a total of $5,000 to your IRA in 2006.
Fully funding your IRA should be one of your top investment priorities. Keep in mind that IRAs offer two major benefits:
Tax advantages - If you have a traditional...
Ira > IRA Catch Up Limits Help Baby Boomers
Cash Now and Rainmaker Announce 401(k) or IRA Rollover Assets to Finance new Cash Now Licenses and Expansions
Cash Now Corporation, (CHNW) a pioneer and continuing leader in the payday loan industry, is now offering a way for investors to use their 401(k) or IRA rollover assets to finance new Cash Now licenses and expansions and as capital for other new businesses. Cash Now can make this offer now because it has established an exclusive agreement with a U.S. tax consulting firm specializing in 401(k), 403 (b), Pension, Profit Sharing, IRA rollover or other types of retirement plans. The result is that Cash Now can help entrepreneurs and investors use their 401(k), 403 (b), pension, profit sharing, IRA rollovers or other retirement plans to finance the purchase of a franchise. Cash Now can also advise entrepreneurs and investors on how to use these assets as startup capital for other businesses or to purchase business property with no taxes, no penalties and no loan repayment.
This can be done without distributions, taxes, penalties, or the use of loans. In many cases the money can be...
Cash Now and Rainmaker Announce 401(k) or IRA Rollover Assets to Finance new Cash Now Licenses and Expansions
Ira > Cash Now and Rainmaker Announce 401(k) or IRA Rollover Assets to Finance new Cash Now Licenses and Expansions
IRA Catch Up Limits Help Baby Boomers
If you fall into the Baby Boomer generation, having been born between 1946 and 1964, this 3rd stage of life, retirement,
is right in front of you. Keep in mind, that potentially, this is the longest stage of life, possibly lasting 20-30 years. Dont' fail to prepare for this very important transition into your retirement years.
The prospect of actually becoming a retiree looms larger as the years go by. Fortunately, it's just become a little easier to build savings for your retirement years. Why? Because, starting Jan.
1, you can put in $1,000 in "catch-up" contributions to your traditional or Roth IRA, up from $500 in 2005. So, given the $4,000 annual limit for regular contributions, you can put in a total of $5,000 to your IRA in 2006.
Fully funding your IRA should be one of your top investment priorities. Keep in mind that IRAs offer two major benefits:
Tax advantages - If you have a traditional...
Ira > IRA Catch Up Limits Help Baby Boomers