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Nothing gets a group of successful Americans quite so worked up as a discussion of their tax burden. Whether your personal pet peeve is our nation's huge military commitment, its costly social safety net, or the ever-popular interest on our national debt, we can all agree that too many of our tax dollars go to fund things we don't like -- and those tax dollars represent a big bite taken out of our earnings.
But what if I told you there was a way to invest while escaping the long arms of the IRS, allowing your money to compound without a tax burden? And better yet, what if it was completely legal?
Oh, give me a break. Dude, it's an IRA article, right? It's April, you think your readers can't see this coming? You do something goofy like this every spring. Fools are a pretty smart crowd. Nobody here is going to be shocked to learn that you can invest via an IRA and defer or avoid taxes on the money you earn.
OK, I agree that the existence of IRAs probably isn't news to anybody savvy enough to be reading The Motley Fool. But how many have actually taken the time to set one up? And how many are contributing?
I have an IRA. I set it up when I rolled over my old 401(k) way back when, just like you told me to. It's doing pretty well.
Yeah, but when's the last time you contributed new money to it?
Eh, I don't bother with annual contributions. At this point the $5,000 I could be putting in every year looks kind of lame compared with the returns I'm getting on the money I already have.
You're going to make me pull out that old personal-finance writer cliche, aren't you? You know, the one where I go on about how contributing $5,000 a year to an account earning 10% adds up to an additional $991,964 after 30 years. That's just a cheap used car shy of a million bucks! You can't use an extra million bucks when you retire?
C'mon, eight grand isn't that cheap for a used car.
Listen to me here. I think a lot of people "know about" IRAs and pay lip service to them, and maybe even have one that they contributed to once or twice way back then, but I think the number of people who actually plan to contribute the $5,000 maximum (or anything at all) and then follow through on it year in and year out is a lot smaller than it should be. And that's too bad, because most of us can come up with some money to invest once a year and the big tax advantages of an IRA make it just about the best way to invest for the long haul.
You know what my problem is? First, I have to plan to have the money. Second, I have to figure out what to invest it in. I don't have time to be --
OK, now it's my turn to say, "Give me a break!"
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Really, it's not hard. If you haven't filed your taxes yet, you can still make a contribution for 2010 and take the deduction if you have a traditional IRA. If you have a Roth, you can just go ahead and do it.
If you don't have an IRA yet, or just want to learn more about the ins and outs of keeping more of your money away from the tax man (a worthy thing to do), check out the complete guide to retirement accounts in the new issue of the Fool's Rule Your Retirement newsletter. Retirement guru Robert Brokamp is my favorite go-to authority on this stuff, and he put together a great guide to making the most of your IRAs just in time for tax season.
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