M ONEY & FIN AN C E
Federally
TAX FREE Concepts
Last month we explored tax deferred strategies, this month we will examine tax free strategies for savings and investing. The main distinction is that funds that are invested in tax free strategies will come out with no taxation while the tax deferred strategies ultimately come out and you wind up paying taxes on the compound effect of the accumulated funds. Several tax free strategies are Roth IRA accounts and Roth 401K accounts. Certain Municipal bonds may be tax free. State and local taxes may apply and interest may be subject to alternative minimum tax. Roth IRA accounts are invested with after tax dollars and as long as the funds are invested for 5 years and you are age 59 ½ or older they come out tax free. There are income limits on Roth IRA accounts. For 2014 if you are a single taxpayer and your income is over $114,000 your ability to contribute to a Roth IRA starts getting phased out, once your income goes over $129,000 for 2014 your ability to contribute to a Roth IRA is not allowed. If you are married the phase out starts at $181,000 and the contribution is not allowed once your joint income exceeds $191,000. If your income is too high to contribute to a Roth IRA there are several options to help you contribute to a Roth IRA. You can convert part of a Regular IRA to a Roth IRA. The income limits on conversions were taken off in 2010. You will have to pay tax on the amount converted if the IRA was a deductible IRA. You ideally want to do this in a year when you have additional
36 | June 2014