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Tax-Deferred Investments

Tax-Deferred Investments. Or IRAs Independent Retirement Accounts. Capital Gains. Capital Gains are taxes on earnings from investments This is considered income. Capital Gains Tax Rate 15%. This includes: Interest on bonds Dividend payments

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Tax-Deferred Investments

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  1. Tax-Deferred Investments Or IRAs Independent Retirement Accounts

  2. Capital Gains • Capital Gains are taxes on earnings from investments • This is considered income

  3. Capital Gains Tax Rate 15% • This includes: • Interest on bonds • Dividend payments • Capital gain when you sell a stock for a profit • Even the interest you earn on a saving account

  4. Tax Deferred • This means you put-off paying taxes until later. • When you do this, you end up with more.

  5. Tax Deferred Means You End Up With More!

  6. Introducing: The IRA • 2 Big Benefits: • You end up with more • You benefit now because your contribution is a tax deduction.

  7. IRA Continued • An IRA is not an investment. It is just a signal to the IRS (Internal Revenue Service) not to tax until later. • You can invest in stocks, bonds, or mutual funds THROUGH an IRA.

  8. Tax Deduction • When you give a 1,000 dollars to charity or contribute 1,000 dollars to an IRA, the government considers your salary 1,000 dollars lower when it computes your tax.

  9. Example • Your Salary – 10,000 • The tax-rate - 10% • Your tax bill – 1,000 BUT You contribute 1,000 dollars to an IRA Your salary – 9,000 Tax-rate – 10% Your tax bill - 900

  10. Everything in Econ involves trade-offs

  11. IRA Trade-Offs • Pro • Pay less taxes now • End up with more when you pay taxes later • Con • Cannot get to the money until you are 60-years-old

  12. Problem: Americans are not Saving Enough • Enter Senator William Roth and the ROTH IRA. • In 1998, the government created a new IRA that is very attractive

  13. Trade-Offs Roth IRA • Pro • NO CAPITAL GAINS taxes at the end • This means you will end up with more than a traditional IRA • You can take out the principal at any time for 1st time home purchase • Con • No current tax deduction

  14. An Interesting Idea • If your parents are saving money for you. • They could create a Roth IRA and then give you the money tax-free when THEY turn 60!!!!!!!

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