Any American whose income is below a legally specified level can save up to $2,000 per year in an IRA account tax-free. This means that you pay no income taxes on the money you invest in your IRA, and the interest, dividends, and other income enjoyed by the money continues to be tax-free for as long as you let the investment grow. When you retire and begin withdrawing the IRA money, the funds are taxed as ordinary income at your applicable tax rate — which is likely to be lower than your current tax rate, because you no longer earn a salary.
Check current tax law to find out whether you’re eligible for an IRA account. The answer will depend on your income and on whether you’re covered by your employer’s pension plan. If you’re not covered by such a plan, you’re fully eligible for the IRA tax deduction; if you are covered, the income limits kick in.
Any mutual fund company, brokerage firm, bank, or other financial company can help you set up an IRA account. You can then fund it with whatever investment you choose, including your choice of mutual fund.
When investing in an IRA or any other tax-deferred retirement plan, don’t invest in a municipal bond fund or in any other fund type that specializes in low-tax or no-tax investing. Remember, such funds generally produce a lower rate of return than similar taxable funds, and because you are not paying any taxes on the income you enjoy from the fund, you have no reason to settle for that lower rate.
No comments:
Post a Comment