Taxes - IRAs And A Plan

Taxes are as much as part of life as they are in death. Everybody has to pay them and when you try and avoid them, they always will find you, maybe not right away but in the end, the government wants and will get their share.

Now we are talking about personal taxes for the common folks who work hard at lower paying jobs. We will leave corporations out of this discussion because they have so many ways to avoid and cheat on their taxes you could fill a library with books on the subject.

Lower wage earners ($15,000 - $25,000 yearly) have always struggled just to pay the bills and put food on the table. So many do not understand how to budget or even how to attempt to start saving for retirement.

Lets go over a few things to help these people out.

Start with a budget plan. Put it on paper. Start with how much you make each month, then list all the expenses, bills and such. Then take a good look at all the expenses and see where you can cut down or thin them out to the lowest amount possible to get by on.

Your biggest cuts will come from how much you pay for food and entertainment. Get your food budget under control with proper meal planing; you will be surprised how well you can eat but stay on a budget just by planing better. Same goes for entertainment. Cable, phone and Internet these days can be bundled which in turn will save you money.

The point being, the money you save by planing and budgeting just the small things in life will provide you with the payment you need to invest in an IRA. This is your main goal. Lower wage earners need to understand that they too can start and maintain a simple IRA just by paying attention to a well-devised budget.

Another important point is the taxes taken out of your paycheck. You can control the amount they take out. Your goal here is to not have a big return at the end of the year. You want a little return or none at all. The reason for this is simple, instead of getting a big return, claim more deductions on your W-4 form, you will have less taken out by taxes and more money on your paycheck. The key here is not to spend the money but put that into your IRA.

Low wage earners that get $1,000 back are letting the government keep and use your money and pay you nothing for this usage. It is better for you to have this extra money each month so that you then can invest in your retirement account.

The key is of course is not to have too little taken out as to have to pay taxes at the end of the year. This works really well for low wage earners.

Example:

You are married, file jointly, and your income is $24,000 a year. Mark 5 deductions on your W-4 form and the government will only take out taxes for the basics, just the medical and social security tax but no federal or state taxes.

At tax time, filing jointly on a $24,000 income you get the standard deduction of $11,500 right off the top, then your deduction from your IRA and if you own your home there are mortgage interest and house taxes that can be deducted.

By the time you have done this it puts you in such a low tax bracket that you end up paying no tax. Now you probably won't see a tax return but the whole goal of doing this was to take the money you were just giving to the government for their usage and put it into your pocket for you to invest in your IRA.

This is a simple plan on how the low wage earners in this country can still invest and maintain a retirement account each and every year so when old age does come (and it will) you will have a bit more money to live on.


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Casey Trillbar is the editor of YourRothIRAGuide.com, which is a website
aimed at supplying articles, information and resources to people
considering the use of a Roth IRA Agreement for their retirement.

http://www.YourRothIRAGuide.com