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Tax On Savings Bonds Article
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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.
Tax On Savings Bonds News
Premium bond winners fall as interest cut hits popular saving product - Daily Telegraph
New figures showed that there were just two winners for the £25,000 monthly prize, compared to 19 in November and 78 in December last year. The total prize fund has also been slashed, although there remain two £1 million jackpot prize winners each ...
Read more...Premium Bond prize numbers tumble - BBC News
Interest rate cuts by the Bank of England have led to a rapid decline in the number of Premium Bond prizes that are awarded. In December last year, there were 78 winners of the £25,000 prize. This fell to 19 in November this year and just two this ...
Read more...Can we blow mother's savings? - This is Money
My 80-year-old mother has savings of about £25,000 plus £15,000 in Premium Bonds . She is looking to give the bonds to her three sons and to reduce her savings by giving £10,000 to her eight grandchildren. This will leave her with about £15,000 ...
Read more...How should you invest in a bad economy? Stocks? Bonds? - USA Today
Should you shift more money into stocks? Put it all into a savings account? Pay off your mortgage? Hop a freight and become a hobo? "I could no longer watch in horror as the amount in my 401(k) kept sinking to new lows," says Ciarán O'Tuathail, 35 ...
Read more...Fitch Rates El Paso ISD, Texas $57.2MM ULT Bonds 'AAA' PSF/'A ... - Businesswire.com
AUSTIN, Texas--( BUSINESS WIRE )--Fitch Ratings assigns an 'AAA' rating to $57.2 million of El Paso Independent School District (the district), TX unlimited tax refunding bonds, series 2008A. The 'AAA' rating is based on the guarantee provided by the ...
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