Welcome to tax saving Guide
Reduce State Georgia Taxes Article
. For a permanent link to this article, or to bookmark it for further reading, click here.
You may also listen to this article by using the following controls.
The 401k – Tax Free or Tax Deferred Savings?
from:We commonly refer to our 401k accounts as tax free savings. And, it’s true that we don’t pay taxes on any money we contribute to our 401k accounts during the year we contribute it. However, it’s also important to realize that we do pay taxes on our 401k accounts during retirement when we withdraw the money for our living expenses. Therefore, a traditional IRA or 401k account is really a tax deferred savings account, not a tax free one.
Now, this doesn’t mean that 401k accounts or IRAs are bad. In fact, they are, and should be, the cornerstone of retirement planning. But it is important to understand that you will pay taxes on every dime that you withdraw from your 401k account – even the interest you’ve earned over the years. As you withdraw, this money becomes taxed just like any other income you receive. So, you’re deferring the tax on the money until you’re using it – hence the name tax deferred savings. It’s also likely that you pay fewer taxes on this money than if you had paid taxes on it while you were working. Most of us have a lower income during our retirement years, so we pay taxes in a lower tax bracket. This means that our tax deferred savings will likely get taxed at a lower rate than at the time we earned it.
But, there is a way to have some actual tax free savings for your retirement, rather than having all of your retirement money in a tax deferred savings status. This is the Roth IRA account. With a Roth IRA, you invest money into your retirement account on an after tax basis, not a pre-tax basis. Because you invest after tax money in a Roth IRA, your withdrawals are tax free. Even earnings on your contributions are tax free, so long as you wait until age 59 ½ to begin withdrawing these earnings. Therefore, Roth IRAs can provide some actual tax free savings, in contrast to traditional IRAs and 401ks, which are just tax deferred savings.
Another advantage to the Roth IRA is that it is free from the minimum withdrawal requirements of the traditional IRA or 401k. Under current laws, beginning at age 70 ½, holders of an IRA or 401k account must begin taking minimum withdrawals from the account. With a Roth IRA, you are never forced to make withdrawals.
Most financial planning experts recommend a combination of Roth and traditional IRAs to plan for a secure retirement. Check with your financial advisor to come up with the best retirement accounts for you.
Reduce State Georgia Taxes News
Hufstetler qualifies for open Georgia Senate District 52 seat
May 24, 2012 - Republican Chuck Hufstetler has qualified for the state Senate, District 52. “This campaign will be about who has the proven conservative record to take to Atlanta to get our state m...
Read more...UPDATE 2-Germany's Evonik to brave jittery IPO market
* First trading day in Frankfurt seen before summer break * RAG foundation, CVC to reduce stakes * Sources have said firm could raise up to 5 bln euros By Ludwig Burger and Matthias Inverardi FRANKFURT, ...
Read more...DeKalb schools cuts could include Fernbank Science Center
DeKalb schools cuts could include Fernbank Science Center
Read more...Your employer may be pocketing your state income tax
State tax incentives for businesses are on the rise. Proponents say they help keep companies in a state and create jobs, making them important to statewide economic development. What they often don’t show is who pays for these costly incentives. Increasingly, employees foot the bill – often without their knowledge.
Read more...N.C. Chamber seeks to rein in future unemployment benefits
The chamber, the lead advocate for the state’s business interests, wants to reduce the maximum weekly benefits and the length of time that unemployment benefits can be paid.
Read more...