We all think about making more money – to pay bills and to save for the retirement. But making an extra income without investing it wisely for the future growth may not be the best strategy. Not only think about making more money, but also about creative ways to make money work for you tax free – sounds oxymoranic – but it’s easy to do.
It’s fact that when it comes to wealth, rich people invest more into tax sheltered investments that grow over the time. They learn how to use compounding rate of return to grow their nest egg tax free. The secret lies in the fact that rich people know how to reduce their realized income by finding ways to grow their unrealized income.
All of our ideas to make money revolve around the central fact that we all want to have more disposable income – to invest and to grow our nest egg. But taxes take a huge amount of money away before we even realize it. So, let’s explore some of these ideas to make money work for you once you earn it.
Invest in Roth IRA to own commercial real estate.
Roth IRA is the best tax free investment vehicle. By paying taxes upfront, IRS allows up to $5000 per person to save in Roth IRA. Married couple can save $10000 per year in Roth IRA. Assume that you are in 25% tax bracket, $2500 goes to uncle Sam and $7500 goes to Roth IRA. One of the best usages of Roth IRA can be made to purchase investment properties. All you need is a custodian company that can handle real estate investment through your Roth IRA. It’s very easy to find these companies on Google. With the current real estate market plunge, you can find distressed or foreclosed investment property at a deep discount. Your Roth IRA can purchase this investment property and also fund the needed repairs. You can sell the property and make money without paying any capital gains. Now, you can invest in another property and repeat that process over and over. You will never pay taxes ever. All the accumulated capital gains can be used for any purpose – even for your child’s education in the future.
Invest Roth IRA or Simple IRA into tax free income fund.
Another great way to grow your asset tax free is to invest part of your Roth IRA or simple IRA into tax free income fund. If you have $100,000 in your taxable investment yielding 5% annually then you would have earned $5000. But, if you are in 28% tax bracket then your realized gain would be $3750. Instead, if you invest same $100,000 into a tax free income account yielding 4.5% annually, it would have returned $4500. Now, you have $750 more to invest next year.
Albert Einstein once said that the best force in the world is the power of compounding return. Once you become a good custodian of your money and find ways to let it grow tax free, you’ll be amazed that these simple ideas can make money work for you.
[…] There is no income tax on asset that appreciates yet has no earned income. Wealthy people invest in income producing real estate and mutual funds. Unrealized income is one of the greatest investment tools to become […]
Interesting recommendations. And timely for me. We should have some funds avail soon and we were wondering how to invest it. What you suggest seems like an interesting options to explore – thanks for that.
[…] good idea to invest your retirement funds into a growth or an index mutual fund. But, the market has not returned much in last 10 years. Both DOW and NASDAQ are well below their […]
[…] good idea to invest your retirement funds into a growth or an index mutual fund. But, the market has not returned much in last 10 years. Both DOW and NASDAQ are well below their […]