| How to Legally "Opt Out" of Federal Income Taxes | | By Dr. David Eifrig, editor, Retirement Millionaire | Friday, April 12, 2013
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| If you're a retiree… or if you're simply looking to earn safe interest on your money… you have two enemies:
1. Federal income tax rates that can take a 20%-30% bite out of your earnings… In some cases, that number is as high as 40%.
2. Interest rates that are near record lows. Right now, you're lucky if you can make even 1% on your bank savings… And that's before taxes.
Fortunately, you can fix this situation very quickly.
You just need to know how to legally "opt out" of federal income taxes on your savings… and where to find much higher (but still safe) rates of income…
Let me show you what I mean…
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Two horrific predictions for America
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Right now, the highest-yielding one-year Certificate of Deposits (CDs) pay about 1%. Most banks offer a little less… but for this example, we'll use the banks offering the highest yields.
The federal government will tax the income you collect from CDs just like ordinary income. For most folks, this means they must pay Uncle Sam 25%-28% of any interest earned. For high earners, the tax rate is 39.6%. Keep these figures in mind… We'll come back to them in a moment.
But first, you need to know you have the option of placing your money into another safe investment. This investment pays 5.6%… and the interest is free from federal taxes. If you live in a state with zero income tax (like Florida or Texas), you pay no tax at all.
So… a saver has the option of parking his money in the bank… we'll call that "option A" – or in this investment… "option B." Here's how the numbers stack up after you factor in taxes:
| | Option A | Option B | | Initial capital | $10,000 | $10,000 | | Annual yield | 1% | 5.6% | | Interest income after one year | $100 | $560 | | After federal income tax (28%) | $72 | $560 |
As you can see, it's no contest. By owning this safe, alternative investment, you can earn 7.7 times more interest on your savings. For a $10,000 investment, that's an extra $488 after just one year.
If you're in a higher income bracket and put in a larger chunk of savings, the numbers get ridiculous. For example, on a $100,000 chunk of savings, you'll earn nearly $5,000 more a year with this tax-free strategy versus a high-yield CD.
And you can start earning this income RIGHT NOW. It will take you just five minutes. All you need is a regular brokerage account. And all you need to do is buy one of my recommended "muni bond" funds.
As regular readers know, municipal bonds are loans made to state and municipal governments. To encourage folks to invest in the government, interest received from "munis" is exempt from federal income tax. And again, if you live in a zero-income-tax state, you'll pay $0 in taxes on your income.
Right now, one of my favorite muni bond funds, the Invesco Insured Municipal Income Trust (IIM), is offering you 5.6% in annual interest. By buying this fund, you park your money in loans to various state and local entities. It's a diversified fund that owns over 300 different bond issues. And as of yesterday, it was even trading at a small discount to the value of its bonds.
Of course, unlike a traditional CD, there's no guarantee that the price of the fund won't fall. So this isn't something you want to put ALL your savings into. But these bonds are backed by the taxing power of state and local governments. And they're insured against default. A fund like IIM is a safe choice for a good portion of your savings (up to 5%).
If you've earned and saved your whole life and would like to earn income on those savings, stop shortchanging yourself. Consider "opting out" of federal taxes and moving some of your savings into a muni bond fund.
It's safe… and you can start earning nearly eight times more income than you do in the bank.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
P.S. I'm still encouraging my readers to own municipal bonds… but I've uncovered another tax secret that's even more valuable. It enables you to legally generate thousands of dollars in income every year, which you never have to report to the IRS. Best of all, this has nothing to do with offshore banks, new tax structures, or retirement accounts. I estimate I've collected more than $50,000 in tax-free income this way over the past decade. If this sounds like something that interests you, you can learn more about how I do it right here. |
Further Reading:
In 2010, Wall Street sensation Meredith Whitney made a bearish call on muni bonds. The market panicked. And that created a great opportunity to collect safe, double-digit income in the sector. Read more here.
Doc has used an unusual "anaconda strategy" to help his readers buy muni bonds at steep discounts. "If you can master this technique," he writes, "you can avoid a huge amount of worry and wasted time… and set yourself up to make extraordinary returns." Learn more about this low-risk, high-probability technique here: The Rich Investor's Secret to Avoiding Worry and Wasted Time. |
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CHECKING IN ON OUR "SWIMMING POOL INDICATOR"
It's time to check in with POOL for a read on the American economy…
Regular DailyWealth readers know a handful of businesses serve as our "real world" economic indicators. We're talking about key American businesses like Home Depot and Harley-Davidson. The profits and share prices of these companies can tell you a heck of a lot more about the economy than any government official can.
One such company is SCP Pool Corp. (POOL). It's America's largest wholesale distributor of swimming pool-related supplies and products. We see swimming pools as one of the ultimate ways Americans spend their spare cash. They are "want" items, not "need" items. So POOL's profits and share price rise and fall with America's ability to make and spend extra cash.
As you can see from the chart below, things are getting better for POOL. Shares have climbed from $20 in late 2010 to their current level of $49. Yesterday, the stock reached a new high on the back of increasing sales. This all leads us to say, sure, America has its problems, but for now, the trend in "free spending" is UP. Trade accordingly…
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| Friday, April 5, 2013 | | It's official: Obama unleashes his first attack on American retirement accounts | | "Under current rules, some wealthy individuals are able to accumulate substantially more than is needed…" | | | | Monday, April 8, 2013 | | This could be the most important silver chart you'll see all year | | "What does this mean?" | | | | Thursday, April 4, 2013 | | Gov't INSANITY: You may not believe what Obama is proposing now | | "Fools never learn…" | | | | Friday, April 5, 2013 | | Doc Eifrig: A no-brainer way to reduce your risk of Alzheimer's | | It's as simple as avoiding this common food ingredient… | | | | Tuesday, April 9, 2013 | | Controversial report: The U.S. is quietly preparing for a new war | | "Intelligence says there will be an attack on American soil…" | | |
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What do Michelle Obama's tax returns tell America?
You might not believe what was found inside the tax returns of the "First Couple," Michelle and Barack Obama.
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| The "Stealth Dividend" Strategy Is Still Delivering | | By Dr. Steve Sjuggerud | | Thursday, April 11, 2013 | | | | Since 2000, this strategy has crushed the overall market… | | | | The Moral Imperative of Paying Less Tax | | From Conversations with Casey | | Wednesday, April 10, 2013 | | | | If you've ever stopped to wonder what a tax-free world would look like, this interview is well worth the time… | | | | Massive Changes in the Housing Market… What to Do | | By Dr. Steve Sjuggerud | | Tuesday, April 9, 2013 | | | | What's happened in real estate is nothing short of extraordinary… | | | | Japanese Stocks Are up 40% in Five Months… Who's Next? | | By Dr. Steve Sjuggerud | | Monday, April 8, 2013 | | | | You might be surprised to hear it… | | | | This Is a Sign That a Stock Market Boom Is Headed Our Way | | By Dr. David Eifrig | | Friday, April 5, 2013 | | | | This is why it's best to stay long stocks right now… | | |
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