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Who doesn’t love tax-free money? One of the benefits of using a Roth IRA is that all of the growth inside of this tax-advantaged account can be pulled out tax-free! In this article, I am going to share how you can grow your retirement account through the investment of commodities and skip paying the 28% capital gains tax legally!

Tax Free Money

 

Roth IRA vs. Regular IRA:

 

The difference between a Roth versus a regular IRA is “when” you pay taxes on the money. With a regular IRA, you take the tax deduction now but have to pay taxes on the amount you withdraw later.

The downside is that when you elect to pay taxes later, you have to pay taxes on the interest AND the gains that your money has made over your lifetime of saving and investing.

Moreover, you won’t know which tax bracket your future you will be in. Not to mention, tax rates are always fluctuating and the government keeps passing spending bills.

I love a sure thing, which is why I really like the Roth versions of 401ks and IRAs. I know that when I look at my account, every penny is MINE!

In a Roth IRA, your money grows and so does the compound interest. These two parts grow tax-free because you funded the account with post-tax dollars.

Another benefit that comes with a Roth IRA is that since you have already paid taxes on the money in the account, there is no RDM (required minimum distribution). Meaning that you can decide to withdraw at any time after age 59.5. 

With a traditional IRA, you are required by the government to start pulling a minimum distribution from your retirement account at age 70.5. This is because the government want’s it’s cut (taxes). Here is an easy RDM calculator by Schwab.

The goal of this blog is to show you how you can save money by going green and then reinvesting that money to gain your financial freedom! A Roth IRA is just one of the financial vehicles you should use to make sure you are ready for a worry-free retirement. 

So how much do you need to retire? Well, that depends on what kind of lifestyle you plan on living when you are retired. Let’s take care of the bare minimum, and then work on using other investment vehicles to cultivate play-money!

 

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How to Take Care of the Bare Minimum with a Roth IRA:

 

If you spend $40,000 per year during retirement, you will need around $1,000,000 to reach financial freedom based on the 4% rule. The 4% rule basically states that you can consistently withdraw $40,000 every year without touching the principle.

The result is that you can live off of the interest and appreciation of your portfolio. You are pretty much guaranteed to be able to live off your investments for 30+ years by following this rule. This is especially the case if you hold 75% stocks and 25% bonds.

In a prior post, I show you how you can fully fund a Roth IRA and become a millionaire by saving $15 a day!

In case you missed it, here is a quick summary.

 

How to Fully Fund A Roth IRA:

 

The maximum that the US government allows you to contribute to a Roth IRA is $5,500 or $15 a day ($458 per month). If you do this, you will end up with over $1.2 million in the bank.

Bang! You are a millionaire and are guaranteed to retire!

With the 4% rule, you will be able to retire at the age of 65. That is if you started investing when you were 25 (or over any 40 year period).

To learn more about the benefits of a Roth IRA you can read Roth IRA: How to Become a Millionaire by the Time You Retire! Can’t find $15 a day to save? Read “8 Ways to Save for a Down Payment on a Home and a Roth IRA“.

The image below shows the math, but if you want to play with the numbers yourself you can head over to Bankrate.com.

bank rate Roth IRA

 

 

The Secret of Owning Gold and Silver:

 

Tip 1:

Diversification is critical to lowering your risk while owning enough of the market to maximize your gain. Should you decide to own commodities in paper form (stock), you should trade them within your Roth IRA.

By owning paper gold and silver (stock) in a Roth IRA, you won’t have to pay taxes on the increase in the value of the gold and silver!

The capital gains rate tax on gold and silver is 28%, which is almost twice as high as the normal capital gains rate (15% for most).

If you were to trade gold and silver in your regular brokerage account, you would owe 28% of the gains in taxes. Say you made $100 in profit, well you owe Uncle Sam $28.

 

Chart provided by TLBJ a CPA firm.

The benefit of trading gold and silver commodities within your Roth IRA is that you don’t own ANY taxes on the gain! Meaning that you get to keep all of your profit! 

This is because you pay your taxes on the money you put into the Roth IRA before it goes into the tax-advantaged account. When you decide to pull the money out, you can do so without paying taxes on the withdraw, which includes the interest and gains!!

I love TAX-FREE MONEY!

 

Tip 2:

Should you invest in gold and silver bullion (meaning that you actually take possession of coins or bricks), the dealer is only required to report to the IRS if you buy/sell more than $10,000 in a year.

Be sure to keep your receipt so you know how much you paid for the bullion (your cost basis). When you sell the bullion you need to report any gains or losses to the IRS. Should you have made money, you will owe a 28% capital gains tax on the increase. The increase is the amount you made above your cost basis.

**Gold and silver is a favorite of many investors due to the privacy it provides its owners.**

Remember, the goal is to get as much of your money from passive and investment income streams as possible. This is because they are taxed at a lower rate than regular income, and your money works for you while you sleep.

Here is a quick video that explains the IRS regulations on buying and selling bullion by SDBullion.com

 

 

 

How Much You Should Have Saved at Every Age:

 

 

Chart source: Fidelity

The chart above shows how much you should have put away in savings for your age.

The formula is based on the assumption that a person saves 15% of their income annually beginning at age 25, invests more than 50% of their savings in stocks over their lifetime, retires at age 67, and plans to maintain their pre-retirement lifestyle in retirement.

 

Here’s the breakdown of Fidelity’s “How Much to Have Saved at Each Age” formula:

30: Have the equivalent of your starting salary saved
35: Have two times your salary saved
40: Have three times your salary saved
45: Have four times your salary saved
50: Have six times your salary saved
55: Have seven times your salary saved
60: Have eight times your salary saved
67: Have 10 times your salary saved

 

Being a Life-Long Learner: 

 

I complete a book every week and a half because I know that knowledge is the key to success. Often times authors spend years writing a book that contains all of the secrets that they have learned over decades of experience.

Want to learn other tax tips that will save you a ton of money and help you retire quicker? Take the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

Where did I learn about Gold Tip #1?  From an awesome book called Tax-Free Wealth by Tom Wheelwright CPA. I can’t say enough about this book and highly recommend reading it! You can get it on Audibles by clicking the photo below.

 

 

 

Like what you see? Stay a while!

 

If you have learned anything new here, please remember to share so that I can continue to provide you with more content!

Feedback is always welcome! Do you know any tax-free tips that you use or want to share? Please comment below!

 

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Lynzee Lai

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