| |
|
|
|
| |
|
IRA
Why IRAs Make
Sense When the Individual Retirement Account was
originally introduced, many people took advantage of
it because it was a way to reduce taxable income.
Later, when the deductibility was changed, the
popularity dropped drastically. True, the income
deduction was a benefit, but the real advantage to an
IRA is its status as a tax deferred way of saving.
One of the large brokerage firms used to have the
slogan, "It’s not what you earn, it’s what you keep."
That’s a direct reference to the fact that if you earn
interest on an investment, you’re going to be taxed.
To determine your true earnings, you have to subtract
the taxes from the total. However, if your investment
has a deferred tax status, you earn income now and
don’t have to pay taxes until later. Your savings grow
at a much faster rate.
In 1994, married individuals filing jointly with a
combined income of $38,000 or more were in the 28
percent tax bracket. If a couple at this level earned
interest on a taxable investment, they actually had to
reduce those earnings by 28 percent after they paid
their taxes. Since the taxes are deferred on an IRA,
that same investment would return 28 percent more
interest. You do eventually have to pay taxes when you
begin distributions, but for most people their incomes
are substantially less at that point and their taxes
are reduced.
|
| | |
 | |
|
| |
| |
