Yumbo's advice on how to screw the IRS for a change.  

 

The Evil Genius
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27/12/2018 4:48 pm  

Some Perfectly Legal Ways to Block the IRS From Touching Your Wealth

there are some relatively easy steps you can take to surrender as little money to the IRS as possible.
If you are unsure of how to do any of this SEEK ADVICE FROM A CERTIFIED PROFESSIONAL.
The last section of this post gives some suggestions on how to look for potential financial advisors.
It's your money - don't pay more than you need to.

1. Maximize Your Retirement Account Earnings

The government loves to encourage folks to save money for old age… but it doesn’t want to miss an opportunity to collect taxes on it, either.

Those dueling ideas are best represented in a pair of popular retirement investment tools — the individual retirement account (IRA) and the Roth IRA. The difference between the two is subtle but important.

Money you put into an IRA can be deducted from your income on tax forms (with limits, of course). With less reportable income, you’ll pay less taxes.

The trade-off is that when you withdraw the money from your IRA after you retire, it will be considered income. So it will increase your reported income, boosting the amount of taxes you’ll pay.

Even worse, once you reach 70 years old, you MUST start taking money out of your IRA. The minimum is mandated by law.

Essentially, the government forces you to withdraw money and then makes you pay taxes on it. If you don’t, you’re subject to penalties and fines.

If you open a Roth IRA, generally any withdrawals you make after age 59½ are not considered income… That means you don’t have to pay taxes on the money. Again, as with anything government-related, there are limits and exceptions. A Roth IRA has different rules depending on your age, how long you’ve had the account, and what you’ll do with the funds…

1. If you remove money, are under age 59 and a half, and have not had the account for at least five years, any earnings you take out may be subject to taxes and a 10% penalty. However, you may be able to avoid the penalty if the funds are used for qualified education expenses.
2. If you are under age 59 and a half and have had the account for at least five years, there is no 10% penalty for any withdrawals, and you can remove contributions tax-free.
3. After age 59 and a half, there is no tax on withdrawing contributions or earnings, assuming you’ve had the account for at least five year

And since the IRS isn’t hunting for its share, the government doesn’t require you to withdraw money from the account.

The trade-off is that the money you contribute to a Roth IRA isn’t tax-deductible. For all intents and purposes, it’s a personal expenditure… something you can’t write off on your tax forms.

Roth IRAs have some pretty strict eligibility requirements, too. If you make too much money, you can’t open one. But thanks to an IRS loophole, there is a way for you to fund one no matter what your income is…

You see, the government allows you to convert your IRA to a Roth IRA. The trick is that the IRS considers the move a distribution and will tax any earnings or pretax dollars you contributed to the IRA. In other words, you’ll be taxed now to take your money out tax-free down the road.

But here’s the thing… Your IRA contribution doesn’t have to be tax-deductible. You can elect to deposit up to $5,500 into an IRA and then choose not to deduct that money from your reported income. Essentially, you are not gaining a tax benefit for putting this money into an IRA. But that also means the IRS won’t tax you when you withdraw it, either.

Clearly, if you mix deductible, nondeductible and earnings income in a traditional IRA, the math can get a little messy.

But ultimately, if you fill an IRA with nondeductible money and then convert the account into a Roth IRA before the account generates any earnings, the distribution won’t be taxable.

So say you open a brand-new IRA with $5,500. And let’s say you don’t plan to deduct that $5,500 contribution from your reported income. Instead of treating the money as a tax deduction, you treat it as a personal expense.

Now, before your $5,500 can earn a dime in the IRA, you convert it into a Roth IRA. Since you used nondeductible cash to open the IRA — and since your IRA hasn’t had time to collect earnings — the IRS doesn’t count the conversion as an income event.

You’ve moved your money from an account that you’d eventually have to pay taxes on to an account that you won’t have to pay taxes on.

If you have an existing IRA, you should still be able to convert it to a Roth IRA. But if you deducted any contributions from your income for tax purposes — or if the account has earned any money — part of the money that’s transferred in the conversion will count as income.

Again, there are all sorts of exceptions and rules that could affect the outcome. The point is, a Roth IRA offers tax-free earnings and doesn’t force you to spend your cash. And if you can, take advantage of the rules to get around a Roth IRA’s strict eligibility requirements

2. Put Your Money Legally Outside of the IRS's Grasp

Stashing your money in offshore banks is a tried-and-true method of avoiding the greedy hand of the U.S. government. And thanks to major advancements in banking technology, setting up and maintaining an offshore account has never been easier.

In fact, you could be up and running in just a few hours.

But which country or territory should you choose? Which bank? And how does it work?

For starters, the process of opening an offshore account is virtually the same as it is here in America.

Many banks allow you to fill out an application electronically. In some cases, verification of your account can take less than 24 hours. Other banks may require you to open an account in person.

Which route you take is entirely up to you

Either way, you’ll want to choose a host country or territory with a high level of transparency, good communication, minimal taxes on withdrawals and no exchange controls.

You’ll also want to choose a currency in which you feel comfortable holding assets.

A quick Google search shows that there are many friendly “haven” countries and territories suitable for most investors: Panama, Switzerland, the Cook Islands, etc.

You’ll want to choose a bank with a high capital ratio (above 8%) and high liquidity ratio (greater than 60%).

The key here is to ensure that the bank invests in high-quality assets and has enough liquidity on hand to cover withdrawals in the event of a run on deposit
 

3. An Option of Trust

If you’re mostly earning cash for your family’s well-being, you can also pass along significant tax savings to your heirs through an offshore trust.

If you’re unfamiliar, a trust is simply an agreement between you and a third party that gives them the power to manage your assets on behalf of your beneficiaries.

Like offshore bank accounts, they work generally the same way they do here in America.

You simply set up an account and outline how you want the assets controlled and eventually distributed to your heirs.

A private offshore trust gives another layer of protection over your wealth — and, in most cases, a significantly reduced tax bill.

For instance, the Cook Islands, in the Pacific, do not charge income, inheritance or estate taxes on an international trust.

On a large trust account, those taxes could add up to thousands, if not millions, of dollars.

Trustees also have the power to make quick decisions on your behalf to protect your capital — such as moving assets into another bank if the financial or regulatory situation changes unfavorably.

So like an overseas bank account, locate a country or territory (and banking institution) that charges minimal taxes and fees on your assets.

It should not have capital controls, and make sure it meets any of your other requirements for risk management.

4. Start a Business

Perhaps one of the best ways to utilize your profits is to use them as seed money to start a business of your own.

You’ll not only have a chance to create something that will last more than a lifetime, but you could enjoy incredible tax benefits when you do.

That’s because small businesses are the backbone of the U.S. economy. So our tax code offers plenty of incentives to start working for yourself. If you can turn a hobby into a cash-generating enterprise, you can rack up some nice tax deductions.

Most business expenses are tax-deductible. Just be sure to keep receipts and use what you buy only for business purposes.

Consult an accountant about anything in a gray area. For instance, if you take friends to dinner to convince them to buy your products, will the IRS see that as a legitimate business expense?

You may also be able to take business deductions on things you already own.

For instance, if you use your car for legitimate business travel, you may be able to deduct the car’s depreciation — essentially accounting for the “wear and tear” your vehicle likely suffered over the past year. Even if the car is still in perfect running shape, you can deduct the depreciation. You can also deduct gas and maintenance fees.

If you go this route, you can’t deduct mileage, which takes depreciation and maintenance into consideration.

You can also deduct depreciation for large office expenses. In general, if an item is expected to last more than a year, you can’t deduct its entire cost right away. Instead, you deduct a portion of its value over a set number of years. This includes high-priced items like office furniture or computers.

A tax expert will tell you what can be written off as an expense and which items need to be depreciated — and how.

In addition, if you set aside a room in your house as your personal office, you can write it off as a business expense. How much you deduct depends on how much space your home office takes up.

As always with taxes, there are multiple ways to take a deduction. The simplest option is to deduct $5 for every square foot of space dedicated to your business, up to 300 square feet.

The other method is to calculate the amount of money you spent on the space. You have to figure out how much space your home office takes up and then subtract that from your total costs.

For instance, if you spent $15,000 on apartment rent in a year — and 10% of your apartment is dedicated to your home business — you may be able to deduct $1,500 of your rent.

The thing to keep in mind is that the home office must be strictly for business use. Doing paperwork at your kitchen table may not count if you also serve meals there. If your kids do their homework or play video games in your computer room, you may not be able to claim a deduction.

Finally, if you have a business, there’s an easy way to deduct some family expenses — just give your family members a job!

For example, let’s say you hire one of your children and he or she wants to go to graduate school or acquire a certificate to improve skills necessary for the job. You can then deduct any expenses paid to enhance your child’s skills.

Employing a family member allows you to deduct their health insurance premiums, too.

Plus, you’ll be literally creating a family business that could persist for generations!

5. Real Estate Tycoons Do This

Starting a business sound like too much work? Another way to generate income and earn tax savings at the same time is to use your profits to buy and rent out real estate.

Let’s say you buy a house and put it up for rent. It’s now an income-producing property. And as long as you don’t use the property for personal use, you’ll be entitled to some tax deductions.

You’ll be able to deduct the costs associated with maintaining the property. That includes everything from advertising the house for rent to making repairs. You can even deduct the insurance premiums you pay for the house.

But perhaps the most powerful tax break you can get from rental property is depreciation.

As we discussed earlier, the IRS lets you deduct the natural “wear and tear” that certain business properties — like a company car — experience year after year.

Even if the item in question hasn’t truly lost value, you can still deduct its depreciation. In fact, with real estate, this could work in your favor.

Real estate can be depreciated over 27.5 years, starting with the day the property is ready for rent. That means every year, you can deduct a percentage of what you paid for the building as depreciation.

So if your annual income from the rental property is equal to deductible depreciation, you won’t pay a cent on that income. As far as the government is concerned, you’re not earning any money on the property — even though you’ve been receiving regular checks from your tenants.

If you make more in rent than you pay in depreciation, you’ll only have to pay taxes on a portion of that income — which could still offer tremendous savings.

Keep in mind that the maximum you can keep this up is for 27.5 years, or until you’ve recovered the cost of the property. Also, if you sell the property, the depreciation is “recaptured.” That means it will effectively lower your cost basis for the property, affecting how much income the IRS says you received for the sale.

However, the best way around that is to never sell the property. When the time comes, your heirs won’t have to worry about the property’s depreciation.

So to take maximum advantage of this strategy, you want to focus on low-cost properties with high-rental yields. That means avoiding overpriced markets in places like Manhattan or San Francisco. Instead, consider more up-and-coming areas like Texas.

6. Add Tax-Saving Investments to Your Stock Portfolio*

*Note - I would defer this to after the stock market stabilises, 

Our next few ideas for using profits to lower your tax bill can actually be employed in your existing stock portfolio.

For instance, investing in bonds is a great way to build wealth over time. They’re essentially private loans to businesses or institutions. When you buy one, the company promises to return your money by a fixed date.

You’ll also receive regular interest payments from the bond.

As you might expect, a bond’s interest payments are usually taxed as income by the IRS. But there is one major exception… a type of bond that pays interest that the feds can’t touch.

They’re called municipal bonds.

Municipal bonds are simply bonds issued by local governments to fund construction projects.

Like all bonds, they have regular interest payouts. But by law, the federal government cannot tax the income you receive from a municipal bond. Depending on your local laws, you might not even have to pay state taxes on the income.

The trick is to find a good municipal bond. There are thousands to choose from, each with various pros and cons.

If you don’t feel like sorting through the various states and cities offering the bonds — or the different interest rates you could receive and so on — you might consider buying a municipal bond fund instead.

Municipal bond funds trade on U.S. exchanges alongside other stocks and exchange-traded funds. That means you can buy them from any stockbroker. Each share of the fund represents a pool of municipal bond funds chosen by the fund managers.

Because the fund actually holds the bonds, it receives all the regular payouts from the municipalities that issued the bonds. Those dividends are then distributed to the fund’s shareholders (minus any administrative costs).

And since those dividends are derived from tax-free municipal bond interest payments, those dividends are often tax-free.

There are many municipal bond funds, like the AllianceBernstein National Municipal Income Fund (AFB) or the Nuveen Quality Municipal Income Fund (NQU). Every share you buy will deliver regular income that Uncle Sam isn’t allowed to touch.

Just be warned that not every municipal bond fund pays tax-free dividends, so check the fund’s prospectus before buying
 

7. A PTP To Leave More Money for Your Heirs*

*Note - I would defer this to after the stock market stabilises, 

Publicly traded partnerships (PTPs) are another type of stock instrument that offers tax advantages — including a big one that could help your heirs.

PTPs trade on major stock exchanges, so you can buy them from any stockbroker. You may also hear them called general partnerships (GP), limited partnerships (LP), master limited partnerships (MLP) and limited liability corporations (LLC).

But even though they trade on the stock market, you don’t buy shares. You buy “units” in a partnership. Owning units makes you a partner in the company.

And as a partner, you’re entitled to a share of the company’s profits. The money you receive isn’t considered a dividend… it’s considered a return of capital.

That distinction offers some incredible tax benefits. When tax time rolls around, in addition to the usual 1099 form your bank or broker sends you to account for dividends, you’ll receive a Schedule K-1 form from each PTP you own.

As a partner, you’re entitled to apply certain deductions to your return on income.

In other words, you may not have to pay taxes on a portion of the income you receive from the PTP. Depending on the depreciation allowances, you may not owe any taxes at all. (The K-1 form will describe what’s taxed.)

The downside is that each “return of capital” check reduces your cost basis in the PTP. The cost basis is the value used to calculate your capital gains when you sell the PTP. A lower cost basis often means greater capital gains and thus more taxes.

When you sell the shares, you’ll be taxed on the difference from the sale proceeds and your reduced cost basis at capital gains rates.

Think of it this way…

Let’s say you buy one share of a PTP for $27. It sends you a dividend check for $2. Assuming the company’s depreciation allowances exceeded $2 a share, you won’t have to pay any taxes on that $2.

But now your cost basis has shrunk to $25. If you sell the PTP share at $27, the IRS will actually say you profited $2 on the sale and will tax your capital gains appropriately. So it’s better to hold onto your shares as long as possible.

Now, here’s the good news for your heirs…

After you pass away, the cost basis of a PTP is reset to the initial cost basis. So using the example above, no matter how many dividend checks you collected from the PTP, upon your death, the IRS will make the cost basis $27 again.

In essence, PTPs can allow investors to leave beneficiaries an income-paying asset without owing tax on shielded income.

As we said, PTPs are listed on major stock exchanges, but you may need to do some digging to find them. A few names to start your search include Welltower Inc. (HCN), Oaktree Capital Group (OAK) and Compass Diversified Holdings (CODI).

8 Help Others to Lower Your Taxes

These last few tips are ways you can use your profits to help others yet still earn tax deductions.

You probably know that you can deduct cash that you give to IRS-approved charities — everything from a national organization such as the Red Cross to your local church.

But there are other ways to turbocharge the deductions from your charitable donations.

For instance, if you donate clothes, furniture or other items to a charity, you can deduct their value from your taxable income. But did you know that extends to stock shares?

In fact, donating your stock could help you avoid paying capital gains taxes.

It’s simple, really. Many charities have mechanisms that allow people to donate shares of stock.

It could be as simple as logging into a brokerage site and initiating a transfer of shares.

If you’ve held the donated shares for more than a year, you’ll be able to deduct their full “fair value” from your income on your tax forms. The fair value is whatever the going price is when you make the transaction.

Imagine that a stock you bought two years ago for $50 is now trading for $100. If you sell the position, you’ll pay capital gains taxes on your profit. But if you donate the shares instead, you’ll be able to deduct the $100 from your income… without any capital gains taxes.

There are limits to the amount of money you can deduct in this manner… it’s usually no more than 30% of your adjusted gross income.

Luckily, the fair value for stock is pretty easy to determine. If you want to take deductions for other donated property, you may have to do some searching.

For instance, a couch may have cost you $3,000 when you bought it. But when you donate it to Goodwill a decade later, its fair value might be just a fraction of that.

Since there is no set formula for fair value, there is some wiggle room — but it’s better to underestimate fair value than overestimate it.

Many charity websites have guides for determining something’s fair value.

You may also claim deductions if you buy tickets for charity dinners, galas or balls. It depends on the fair value of the event and how much of the remaining value goes to charity.

For instance, say you go to a $50-a-plate charity dinner… and the fair value of the meal is $30. The IRS might consider the $20 you paid on top of the dinner’s fair value as a charitable donation, meaning you could deduct the $20 from your taxes.

Again, there are potential pitfalls here. The charity may tell you the event’s fair value to make calculating the deduction easier. If not, you may have to determine fair value on your own.

If the event is at a restaurant, you can try to figure out how much it would have cost outright. If it’s a ticket to a show, look to see how much you would have paid if the charity weren’t involved.

Now, if the value is worth more than what you paid the charity, it can’t be deducted.

Finally, in most cases, you cannot deduct any time you spend working at a charity… But there are still ways to deduct the costs associated for donating your time.

For instance, if you volunteer at a soup kitchen on weekends, you can’t say your time is worth $5 an hour and deduct it from your taxes. However, if you drive to and from the soup kitchen, the mileage may be deductible.

9. Claim Your Parents as Dependents

When a loved one needs constant care and attention, you might be the one who takes care of them financially.

Luckily, our tax system allows people who take care of their elderly or sick parents to claim certain deductions.

In many cases, the parent’s own income might be too much for them to qualify as a dependent. But if you provide more than 50% of the financial support to take care of the parent, any medical expenses that you pay for can be deducted.

Now, if you and your siblings share the financial responsibility, there are ways to get around the 50% threshold. Form 2120 lets you declare your parent as a dependent if you and your siblings are splitting care costs.

You must be providing at least 10% of their care, and your siblings must agree that you are the only one who will claim the parent as a dependent. (You can rotate who claims Mom or Dad as a dependent every year.)

Taking care of an elderly or sick parent could be one of the most difficult things you do in your life, so it’s nice to know there are ways to lessen the financial burden you might encounter.

Additionally, if a nurse/caretaker lives in your home to take care of you or your loved you, you can deduct the room they’re living in as a medical expense

10. Deduct Animal Care Expenses

A lot of people like to think of their pets as family… but you can’t get tax deductions by calling them dependents.

However, there are other ways you may be able to deduct the cost for animal care.

The most obvious way is if caring for your animals could be considered a business expense.

For instance, if you make a living breeding and selling purebred dogs, you should be able to deduct food and vet bills. If you regularly rent out a male horse’s “services” in one form or another to make baby horses, you may be able to deduct stable costs. If your cat becomes an internet celebrity that you can monetize, you may be able to deduct things like litter and food.

The key is that it must be a business expense.

While you may think of the animal as a pet, you’ll have to convince the IRS that it’s more important to you as a revenue source.

It’s also possible to write off animal care as a medical expense. For instance, if you have a guide dog that helps a hearing-
impaired member of the family. You may need to prove that you have a medical condition that the animal helps alleviate — and that the animal is certified to perform the necessary tasks.

An increasing number of people are using so-called emotional support animals — animals used to soothe people with various mental disorders. Technically, the costs for caring for these animals could be tax-deductible. You may have to prove you have a doctor’s orders for an animal to help treat the condition as well as certification that the animal has been trained to offer therapeutic value.

Just keep in mind that the use of emotional support animals is becoming controversial, and more and more people are being accused of abusing the rules.

So don’t be surprised if the IRS has some hard questions for you if you claim animal care as a medical deduction.

Finally, if you foster or rescue animals for a nonprofit charity, you may be able to claim a deduction on your expenses. The charity must qualify for tax-exempt status, and you must be able to prove that you are caring for the animals on the charity’s behalf.

So simply adopting an animal from a local shelter isn’t enough to qualify.\

11. A Beneficiary Who Doesn’t Want to be Taxed On An Inheritance

From the taxman’s point of view, disclaiming property is like never owing it.

Here’s one scenario where that would be an advantage.

You disclaim your rights to a retirement account coming your way in favor of your child because they’re in a lower tax bracket. Those funds would also be removed from your taxable estate.

And for qualified retirement accounts, such as IRAs, the tax benefits are greater yet...

As I have explained before, whoever inherits an IRA must remove the funds per the IRS’ life expectancy tables in Publication 590. And income taxes are due on each withdrawal.

The longer the life expectancy, the smaller the annual Required Minimum Distributions (RMDs).

So, for instance, if you are 55 years old and inherit an IRA from your brother who dies this year, your first distribution must be taken by the end of next year. The distribution period would be based on your life expectancy — 29.6 years.

But if you disclaim the inheritance and it passes to the secondary beneficiary, say your 25-year-old niece, the distribution period would be based on her life expectancy — 58.2 years.

That’s almost three decades of additional tax-deferred growth!

There are other reasons to disclaim money, too.

Besides slashing income taxes, an heir may want to say no thanks for the following reasons:

- To benefit another family member, for example, a grandchild who just got married and could make better use of an inherited one-bedroom condo.

- Because the estate consists of undesirable real estate, such as land that is prone to flooding or rental properties that are difficult to maintain and will be tough to sell.

- The beneficiary is involved in a lawsuit or has creditors who could claim the proceeds.
- The beneficiary is a student and the inheritance would affect eligibility for needs-based financial aid.
- The inheritance comes with strings attached, such as getting an MBA or marrying within the deceased’s faith.
- A special needs trust to pay expenses for the surviving spouse is the secondary beneficiary. Assets moved to the trust may be better protected from nursing home costs and other creditors.
- The primary beneficiary doesn’t need the money, and a charity is the secondary. Disclaiming would accelerate the gift to the charitable organization.

Here’s the crazy part.

It’s not as simple as a beneficiary saying “Thanks, but no thanks. I’ll give it to someone else.” The original beneficiary can’t change or alter the other named beneficiaries. Rather it will pass to the contingent beneficiary just as if the primary beneficiary had died. If there is no will or secondary beneficiary, state law will determine the next taker.

Moreover, it’s important to follow the precise requirements of a qualified disclaimer. If the primary beneficiary ignores them, the property will be considered a personal asset that was a taxable gift to the next person in line.

To use a disclaimer, the IRS requires that the person disclaiming the asset:

- Act within nine months of the owner’s death. In the case of a minor beneficiary, the disclaimer can’t take place until the minor reaches the age of majority or the state allows a guardian to act on the child’s behalf.
- Put the disclaimer in writing and deliver it to the person in control of the estate, which is usually the executor or trustee.
- And does not accept or receive any benefit from the disclaimed property.

The disclaimer is irrevocable. So you can can't go back after a stock market plunge, for example, and reclaim the assets.

Think it might be in your best interest to disclaim part or all of an inheritance? Or would you at least like to have the option? Then make sure your benefactor names a secondary beneficiary in their wills, trusts, and qualified retirement accounts.

And while you’re at it, go through your listed beneficiaries right now, too. You can always change your mind later.

12. Do You Know Your Health Insurance?

Generally, if your hospital was in a network, your insurance plan will usually cover 80% of the total cost for the entire hospital stay and your out-of-pocket share is capped at $6,000, which includes the aforementioned $3,500 deductible.

In other words, even if this happened on January 1st, the most you could possibly owe for the entire event is $6,000… even if the bill hit a million dollars.

What if yuo were admitted to an out-of-network hospital?

Your insurance plan would only cover 60% of the cost and there would be no cap on my share of the burden.

In other words, a million-dollar bill there could possibly end up costing you roughly $400,000 out of pocket in a possible high-deductible HSA plan.

The important part is that knowing some of the big-picture attributes can mean hundreds of thousands in saved (or lost) money… even an emergency.

Let’s say you are on a trip and had to go to the only hospital in town, an out-of-network ER. While there wouldn’t be much you could do for the initial treatment, you could certainly ask to be transported to an in-network hospital once stable ... especially if staring down the possibility of a prolonged stay.

You'd certainly prefer an overpriced ambulance or helicopter ride to unlimited cost exposure!

At any rate, the whole point is that things can happen quickly and unexpectedly.

So if you haven’t studied the particulars of your own insurance coverage – or what you have doesn’t suit your situation – I encourage you to take another look now.

With many year-end deadlines and enrollment periods happening, relook at your health care as a priority.

13. Comparing 529s to 401(k)s and Traditional IRAs

A survey by T. Rowe Price revealed that 74% of respondents are saving for children’s education rather than for their own retirement. That’s up from 68% and 67% respectively in 2017 and 2016.

Many of the participants in the survey are using 529 plans to save for their kid’s college expenses.

However, as easy as 529s are for putting away money for education, they aren’t a good substitute for funding your retirement. The good news is, there is another solution for people in this situation. And you can get on the list to watch a privately broadcast interview to find out what it is.

So take caution if that describes you, because such thinking could jeopardize your long-term financial security and cost you money and opportunities right now.

Other than a reverse mortgage, you can’t get a loan to pay for your retirement. And if you run out of money to fund your retirement, you could end up with no one to bail you out during your golden years.

With that, let’s compare 529s to 401(k)s and traditional IRAs. At the same time we’ll look at ways to potentially turn those retirement accounts into tax-deferred college savings vehicles.

- Tax Savings

Earnings within a 529 are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary. Such expenses include: tuition, fees, books, as well as room and board at an eligible education institution and tuition at elementary or secondary schools.

Contributions to a 529 plan are not deductible at the federal level, although some states will give a tax break to depositors.

Like 529s, 401(k)s and IRAs grow tax-free. The big difference is that you get a tax deduction on contributions to a 401(k) and, depending on your income, to an IRA as well. That means you might be able to cut your tax bill by 10 to 37 cents for every dollar you deposit.

What’s more, your employer might match part of your 401(k) contributions, say 50% of the first 6% you put away. And that will make your retirement fund grow faster yet!

- More Investment Choices

Each state controls what investment options are available in its 529 plan, and the selection is generally somewhat limited.

You can go outside your state to find other investments, although that might cost you a state income tax break.

On the other hand, consider all the choices you have with a 401(k). And with a traditional or Roth IRA, you have even more flexibility — thousands of mutual funds, stocks, bonds, CDs, REITs — at your fingertips.

- Longer-term Investment Time Frame

If you put money into a 529 plan, you’re doing so for no more than 18 years. That may prompt you to invest on the conservative side, especially right before and while your child attends college.

Yet saving for retirement is a longer-term goal… 30-40 years. Plus you’ll have another 20 or 30 years to withdraw the funds. That gives you the option to be more aggressive with your investments and go for greater growth.

- Greater Liquidity

Withdrawals can be taken anytime from a 529 plan. But if the money isn’t used for qualified higher educational expenses, the earnings could be taxable plus a potential 10% penalty on the income.

For instance, if your qualifying expenses are $25,000 and you take out $30,000, you’ll get hit with the 10% penalty on the extra $5,000.

Whereas with a 401(k) you might be allowed to borrow at a relatively low interest rate. Or you could roll it over into an IRA…

When it comes to IRAs, there is normally a 10% penalty if you remove money before you reach age 59 and a half. However you can avoid that penalty if you use the money to pay for certain higher education expenses. You will still owe income tax on the withdrawals.

A Roth IRA has different rules depending on your age, how long you’ve had the account, and what you’ll do with the funds…

1. If you remove money, are under age 59 and a half, and have not had the account for at least five years, any earnings you take out may be subject to taxes and a 10% penalty. However, you may be able to avoid the penalty if the funds are used for qualified education expenses.
2. If you are under age 59 and a half and have had the account for at least five years, there is no 10% penalty for any withdrawals, and you can remove contributions tax-free.
3. After age 59 and a half, there is no tax on withdrawing contributions or earnings, assuming you’ve had the account for at least five years.

- Financial Aid Could Be Tricky…

Up to 5.64% of the value of a 529 plan may be counted when your kid applies for needs-based financial aid. Money you have in retirement accounts, like a 401(k) and IRA, is exempt.

The catch is that if you remove money from your retirement accounts, that income could impact the following year’s financial aid. And current year contributions to an IRA are counted as untaxed income.

One solution is to hold off on the withdrawals until your child’s senior year of college since financial aid won’t be needed the following year.

- Are You In an “Either/Or” Situation?

Only you can decide if funding your retirement should have priority over your children’s college expenses.

And with 401(k)s and IRAs, you can access them to help pay those expenses. But only putting away money for their education, in a 529 plan for example, while ignoring your retirement planning, doesn’t give you as much flexibility.

Now all of this doesn’t mean you can’t save for both. In fact there may be two ways to accomplish that:

The first is to maximize your pre-tax retirement accounts, like 401(k)s and IRAs. Next, calculate how much you saved in income taxes. Then, contribute that amount to your child’s 529 plan.

A second strategy is to max contributions to your Roth IRA every year, assuming you’re eligible. That money, and the earnings, could then be withdrawn when you hit 59 and a half without penalties as a last resort for qualified education expenses.

 
14. The Four Questions You Need to Ask Potential Financial Advisors

- Why you should have an advisor and the credentials they should carry…
- All the red flags you need to be aware of…
- Be a savvy shopper when it comes to the person handling your money…

Are you considering hiring a financial advisor? The reasons for doing so can include:

You no longer have time to manage your investments
Your returns fall far short of what you had hoped
You want a knowledgeable person who will provide a detached unemotional perspective

There’s no shortage of financial planners, insurance agents, and stock brokers who are more than happy to assume the role.

Where do you start?

The best place is by asking friends, colleagues, and family for referrals. You don’t have to share financial details with them. Simply find out who they use or would recommend.

After you have a shortlist of names, there are four important questions to have answered before scheduling an appointment.

Question #1—Do they have any blemishes in their background?

This can be a little tricky because not all advisors are regulated by the same entities.

They go by various generic titles, such as registered representative, financial consultant, financial advisor, or investment consultant.

And to make it more difficult, there is no official regulation for the title of “financial advisor” or “investment advisor.”

Many financial representatives work for broker-dealers, such as Merrill Lynch or Edward D. Jones & Co., that buy and sell securities. They are regulated by the Financial Industry Regulatory Authority (FINRA).

You can use the free tool at https://brokercheck.finra.org/&source=gmail&ust=1546015558294000&usg=AFQjCNFLbp1Ir09__S62P2x6lfTd9va_B w"> https://brokercheck.finra.org/  to see if any actions have been taken against those on your shortlist or the firm.

Also check with your state securities regulator at http://www.finra.org/investors/state-securities-regulators&source=gmail&ust=1546015558294000&usg=AFQjCNEOiH782cnQI9xCvIFec4ZSti8tf A"> http://www.finra.org/investors/state-securities-regulators  - for customer complaints or arbitration claims.

Broker-dealers are required to reasonably believe that any recommendations made are suitable for a client’s financial needs, objectives, and special circumstances.

However, a broker’s duty is to the broker-dealer, not necessarily to the client.

On the other hand, registered investment advisers (RIAs) have a legal obligation to provide appropriate investment guidance and always put clients’ best interest before their own.

RIAs are regulated by the Securities and Exchange Commission (SEC) or your state’s securities authorities.

Go here to search for background information from the SEC and your state’s regulator.

-https://www.adviserinfo.sec.gov/IAPD/default.aspx&source=gmail&ust=1546015558294000&usg=AFQjCNHY4Xz0FAdbl6btpncAP5NDEvyl2 g"> https://www.adviserinfo.sec.gov/IAPD/default.aspx
-http://www.nasaa.org/about-us/contact-us/contact-your-regulator/&source=gmail&ust=1546015558294000&usg=AFQjCNHWWceXd_qrP0rSgQ56LLL9_rMf5 w"> http://www.nasaa.org/about-us/contact-us/contact-your-regulator/

If you can’t find a financial representative on the FINRA’s, the SEC’s, or your state’s websites, it could mean that he isn’t regulated under federal or state securities laws. However, they might be regulated by state law to sell insurance products. Those products may include: life insurance, long-term-care insurance, health insurance, fixed- or fixed-indexed annuities.

Contact your state’s department of insurance regulation. Their websites will often let you do a background check online.

If they aren’t registered with FINRA, the SEC, or your state, it could indicate they’re providing financial advice and/or selling products without any authority or effective oversight.

That should immediately send up a red flag.

Question #2—What licenses do they have?

The FINRA, SEC, and state regulatory websites will also list licenses the advisors hold.

Those who work for broker-dealers can sell you products depending on the licenses they have. For example, a representative who has passed the Series 6 exam can sell only mutual funds, variable annuities, and similar products, while the holder of a Series 7 license can sell a broader array of securities.

RIAs generally have a Series 65 license, although, some states waive this if they hold certain certifications.

Brokers and RIAs might also hold state insurance licenses, which allow them to offer insurance products to clients.

Insurance agents must have a license to sell insurance and annuities.

No licenses? Another potential red flag.

Question #3—What certifications do they have?

The FINRA and SEC websites will list certifications advisors hold. You might also check the advisor’s website. Then you could go to the organization that issues those accreditations to see if the advisor is in good standing.

There’s a truck load of certifications available for financial advisors.

CFP® (Certified Financial Planner™) is the best known. Among the others are:

-LUTCF® (Life Underwriter Training Council Fellow™)
-ChFC® (Chartered Financial Consultant®)
-CLU® (Chartered Life Underwriter®)

Does an advisor with an alphabet of certifications after his or her name mean they’re more honest or better at picking investments?

Not at all.

What it could mean though, is that they have shown a commitment to keeping up to date on the latest trends in the profession.

Question #4—How are they paid?

The advisor’s website might explain how he is paid. If not, call his office and ask.

You’re not looking for a specific figure… just the structure used.

There are generally three different ways financial advisors can be paid:

Commissions only — They receive commissions on products sold
Fee based — They charge a flat fee for financial advice and receive commissions on some of the products sold
Fee only — They charge by the hour and/or a percentage fee for assets under management.

One structure isn’t necessarily any better or worse than another. All have the potential for bias, so you’re depending on the advisor’s integrity. Still, it’s your money… understand how they’ll be compensated before you meet them.

You can never be too thorough when it comes to your financial wellbeing. Plus you’re looking for a long-term relationship, so take your time.

There’s a heap more questions you should ask before hiring an advisor, for instance: How long have you been in business? What did you do prior? What is your typical client profile? Is there a minimum account size?

By doing your homework with the four questions presented here, you should be adequately prepared to choose the right person to provide the type of financial help you’re seeking.


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Market Watcher
Moderator
Joined: 1 year ago
Posts: 191
27/12/2018 5:28 pm  

The Roth IRA is the way to go. After you reach the 5 year mark you can treat it as a savings account. Also, do not forget about the savers tax credit form 8880.


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Itsallbs
Confused
Joined: 12 months ago
Posts: 584
27/12/2018 6:13 pm  
 
 
Add to that list
  • Isle of Man
  • Cayman Islands
  • Channel Islands (jersey & Guernsey)
  • Bermuda
You will find 50% of the world's tax havens are former British territories -which when asked by the USA and EU regulators ( who like to try and give us shit) we have no control over whatsoever  😉  😉  😉  😉  😉 
 
Massive tax avoidance happens through British Crown Dependencies
 
We really are  a fcuking dodgy, gangster little country and I don't mind admitting taking a certain pride in that.
 
Yumbo is also wise to talk about Trusts-not all trust are created equal however.

It'sallbs | Leave means Leave| UK owes the EU £0 and must pay £0| £60 billion for the privilege of being avassal state? As a previous PM once said NO,NO,NO


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MG-ɹǝʍo┴
Founder..
Joined: 1 year ago
Posts: 2924
27/12/2018 6:27 pm  

IRS and the social compact they work for is nothing more than a circle jerking butt fuck in the ass! 

I didn't VOTE for any of this shit! 

IRS: Criminal thugs working for bigger criminal thugs! 


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uoSʎWodɹɐH
Founder.
Joined: 1 year ago
Posts: 685
23/02/2019 3:59 pm  

My vow of poverty should be protection enough from the tax man.

One cannot pay what one will never own.

Blessed is the poor man in the spirit.

The price of governance has grown beyond its value to me..

I have to protect my own rights so the government is failing me now. 

I changed my legal domicile and have been given safe asylum in god's kingdom of heaven on earth.

A constitutional monarchy where Jesus is my king and the Bible my constitution. 

The tax man shall not dwell in my land and I shall not dwell in theirs.

L&R  to all

I was bound to be misunderstood, and I laugh at the idiots who misunderstand me! Kind mockery toward the well-intentioned and unfettered cruelty toward all would-be prison guards of my creative possibilities. In this way I learn to revel as much in misunderstanding as in understanding and take pleasure in worthy opponents. Making language fluid, flowing like a river, yet precise and pointed as a dirk, contradicts the socialistic purpose of language and makes for a wonderful verbal dance—a linguistic martial art with constant parries that hone the weapon that is the two edged sword of my mouth.


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THX 1138
Man
Joined: 9 months ago
Posts: 75
24/02/2019 3:20 am  

I miss Yumbo!

Anyone know what happened to him?


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#Redpillbible
Founder..
Joined: 1 year ago
Posts: 2439
24/02/2019 10:54 am  
 
Posted by: THX 1138

I miss Yumbo!

Anyone know what happened to him?

Pete mentioned that he talks to him personally, but he is not on the forums for personal reasons from what Pete said if my mind serves me correctly. I have a feeling Yumbo is really Jason Bourne and is running from the government and hiding in the shadows.

 

#Remember therefore how thou hast received and heard, and hold fast, and repent. If therefore thou shalt not watch, I will come on thee as a thief, and thou shalt not know what hour I will come upon thee. (Revelation 3:3)


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MG-ɹǝʍo┴
Founder..
Joined: 1 year ago
Posts: 2924
24/02/2019 11:32 am  
Posted by: #MEOWMIXBIBLE
 
Posted by: THX 1138

I miss Yumbo!

Anyone know what happened to him?

Pete mentioned that he talks to him personally, but he is not on the forums for personal reasons from what Pete said if my mind serves me correctly. I have a feeling Yumbo is really Jason Bourne and is running from the government and hiding in the shadows.

He should come to B.C.F.C. and hide! We're a black-hole as shadows go! The government doesn't work around here! They avoid us like the black plague! We're not part of the United States any more, we're exiled, annexed, and annihilated! We're America's favorite shit stain!   


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c^Pig
Founder..
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Posts: 746
24/02/2019 5:05 pm  

I'm scared of what the IRS can do so I tend to not be aggressive with deductions.

#4 actually opens up a treasure chest of deductions and other ways to control your income that W-2 employees do not have access.  As a business owner, it is most valuable to me.  I still read every single line of IRS code before doing anything and thoroughly document.  I am not shy about claiming whatever I legally can as the brutal self-employment tax starts at dollar zero.

Also, anyone who works as a 1099 for others needs to be very leery as I have seen a few of my friends be used like a rental sheep in a lumberjack camp by unscrupulous contractors and business owners. 

Two examples:

Friend one was given a check to be cashed and paid out to himself and three others.  All four were only worker bees.  The asshole contractor sends him a 1099 form for full amount, and he was technically liable for the taxes for the other two who got paid in direct cash and disappeared.   I told him to 1099 those assholes he paid in cash.  It's not that hard.

Friend two is a truck driver who is paid 1099.  He has little clue what 1099 means as a taxpayer.  Business owner has him pay for half the diesel for the big rig but he cannot claim the mileage deduction.  To make matters worse, my friend learns that the owner of the truck is making runs at night with my friend paying for 1/2 the diesel for those runs and zero revenue for him.  This scam is quite common in the trucking industry.

Unscrupulous businessmen are taking advantage of these gig workers' general ignorance of 1099 tax laws and making tax free money at their expense.   Having a business gives one all kinds of tax tools that can be used to abuse people or help people.  It depends on the owners' character. 

Do not work for people with bad character.

Solid article as always by Yumbo, thanks Pete!!

🙂 🙂 🙂 Happy thoughts make happy slaves 🙂 🙂 🙂


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MG-ɹǝʍo┴
Founder..
Joined: 1 year ago
Posts: 2924
24/02/2019 5:43 pm  

I had a contractor try that shit on me as a sub-contractor on a public works job, I refused to fill out the paper work he needed to get paid from the government, never heard or saw anything develop from that situation, but I did cash the check and got paid! He also was in violation of prevailing wages law as we were contracted for much less! Work for less and pay his taxes? Nope! They kept sending me the paperwork for months and it went straight in the trash! 🤭  


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