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Thread: Retirement Fund as Tax-time Strategy?

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    Default Retirement Fund as Tax-time Strategy?

    I was talking to one of my customers who was a financial consultant, and he told me that a good way to keep more of my own money from taxes is to open a retirement account, and save my money there.

    Is this true or is he totally playing me???
    Does anyone know anything about retirement funds versus taxes?

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    Default Re: Retirement Fund as Tax-time Strategy?

    use the 'search' function link on the purple line above, with keywords like IRA , SEP , Roth etc.

    Yes as your consultant friend says it is currently possible to deposit money into a gov't approved IRA account without having to pay income taxes on that money THIS YEAR. But this does not mean that you won't have to pay taxes on that money eventually, either when you officially retire at age 62+, or if/when you must draw out that money prior to age 62.

    Putting money into an IRA account is a calculated risk that the tax rate which you would pay this year will be higher than the tax rate that you will have to pay at age 62 (at which point the withdrawn money counts as income and becomes subject to tax).

    There are other types of IRAs that don't involve this risk, but they also don't allow the same sort of current year tax 'savings' potential.

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    Default Re: Retirement Fund as Tax-time Strategy?

    I have been seriously thinking for a while now about starting to convert my convential IRA that I have contributed to for years to a Roth, about 10 grand a year should not push me into to much higher of a tax bracket.

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    Default Re: Retirement Fund as Tax-time Strategy?

    hmmm i am starting to see how this works. Thanks for the tip.

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    Default Re: Retirement Fund as Tax-time Strategy?

    Agreed on the Roth. For those of you who haven't researched the subject, a Roth IRA does NOT provide current year tax deferral on the contributed amounts, but also does not count as 'income' for tax purposes when the money is eventually withdrawn.

    Personally speaking, I am leery of putting too much money in a conventional tax deferred IRA. The reason of course is that, with tommorow's budget crises making todays problems look minor, it's highly likely that a 'means test' will be established for Social Security eligibility. Thus those people who have put a large amount of money into a conventional IRA may find that when they retire 20-30 years from now the 'income' stemming from their conventional IRA withdrawls makes them ineligible to receive Social Security checks ! Withdrawl of Roth money (which was taxed before it was contributed) will not count as 'income' ... and thus should preserve eligibility for Social Security checks when you retire ! Of course both are allowed to accumulate tax free dividends / earnings on the contributed amount.

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