Don't Miss Your Last Chance at This Zero-Tax Opportunity

You just have a couple days left to take advantage of this tax-saving strategy.

Apr 14, 2014 at 7:45AM

April 15 is almost here, and plenty of taxpayers want ways to cut their tax bills. But the idea of paying zero taxes is a dream most people would never think could come true.


That's why it so surprising for many to learn that if you have a job, you have access to a tool that can help you and your family avoid having to pay any taxes on your investment income not just throughout the rest of your life but for your heirs' lifetimes as well. Best of all, it's never been easier to take advantage of these benefits. All it takes is opening a Roth IRA.

How you can become like a big corporation
Corporate America has become notorious for taking advantage of tax loopholes to pay little or nothing in income taxes. But there a simple strategy available to most taxpayers that you can use to achieve tax savings not just now but throughout your lifetime -- and even giving your heirs opportunities for similar savings.

Roth IRAs don't involve any of the strategies that corporations use to their advantage, but they're equally effective. When you open a Roth IRA, you don't get any upfront tax deduction, which is why so many taxpayers never even think to go beyond the traditional IRAs that they're more familiar with. But what you get in return for giving up that upfront deduction is a lot more valuable, because throughout your lifetime, the income and gains that your Roth IRA investments generate are tax-free. Once you retire, you can take money out of your Roth IRA without paying any tax as well.

Those benefits are great for retirees, but the even more valuable aspect of Roth IRAs is that you can hold onto them forever. Unlike traditional IRAs, which force you to start taking distributions from your retirement account when you reach age 70 1/2, Roth IRAs have no minimum required distributions at any age. If you don't need the money in your Roth, you can leave it untouched and let those tax-free earnings continue to build.


Tax-free estate planning opportunities
The lack of required distributions makes a Roth IRA a great estate-planning tool. You can arrange to pass on your Roth IRA to future generations after your death, and although your heirs will be required to start taking minimum distributions from their inherited accounts, current rules let most heirs stretch out their withdrawals from inherited Roth IRAs over the course of their expected lifespan, using life expectancy tables to pull out an appropriate percentage of the account balance every year. And best of all, those distributions are free of income tax for your heirs as well, giving you and your family generations of avoiding tax entirely -- all for the cost of forgoing a small upfront tax deduction.

What about income limits?
Some workers aren't allowed to contribute directly to an IRA because their income is above the appropriate Roth IRA income limits. For the 2013 tax year -- which you're allowed to make contributions toward until April 15 -- Roth IRA contributions are completely disallowed for single filers earning more than $127,000 and joint filers above $188,000.

But there's a back-door way into a Roth IRA. If you have a traditional IRA, you can convert all or part of that account to a Roth IRA without worrying about any income limits at all. The catch is that you have to include the amount you convert as taxable income on your current-year tax return, but again, that tax bill is the last one you'll ever have to pay on that money and the income and capital gains it generates over the rest of your life and beyond. That's a wonderful legacy to leave behind for your children or grandchildren.

Grab your tax break before it's gone
Roth IRAs are useful in cutting your long-term taxes. But with the April 15 deadline for 2013 contributions fast approaching, you shouldn't wait to take advantage of your Roth IRA opportunity before it's too late.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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