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Taxes Reduce Incentives 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.
Taxes Reduce Incentives News
Merriam Pointe developers miss deadline for incentives - Bizjournals.com
Merriam Pointe developers miss deadline for incentives Bizjournals.com, NC - The developers of a Merriam retail project lost about $4.4 million in incentives tied to not paying about $25000 in delinquent taxes. ... |
BC firms in China say goodbye to tax incentives - Financial Post
 Financial Post | BC firms in China say goodbye to tax incentives Financial Post, Canada - But now, as China sweeps in new corporate income tax legislation, Jinshan will have to say goodbye to these incentives and set aside 25 per cent for Chinese ... |
State approves transfer of $1.2B incentive package to AMD joint ... - Glens Falls Post-Star
State approves transfer of $1.2B incentive package to AMD joint ... Glens Falls Post-Star, NY - The state first offered the financial aid, which includes $650 million in cash and a series of tax credits, to AMD in 2006. At the time, company officials ... NY set to vote on $1.2B AMD plant State approves transfer of AMD incentives |
Gov. Strickland and Lt. Gov. Fisher: Wake up and support a tax ... - The Plain Dealer - cleveland.com
Gov. Strickland and Lt. Gov. Fisher: Wake up and support a tax ... The Plain Dealer - cleveland.com, OH - Forty-three states have already enacted production incentives to the movie business. They are either refundable tax incentives, or transferable tax ... |
Inergy Reports Record Fourth Quarter and Annual Results - MarketWatch
Inergy Reports Record Fourth Quarter and Annual Results MarketWatch - EBITDA and Adjusted EBITDA should not be considered an alternative to net income, income before income taxes, cash flows from operating activities, ... |