There are a lot of misconceptions about takes on your IRA’s earnings vs. your personal taxes. Clay Malcolm joins us today to clear it up. Check it out!
Mike: Hey, it’s Mike Hambright from FlipNerd.com and we have a quick Expert Tip to share with you from Clay Malcolm of New Direction IRA, who’s going to clear up a misconception on IRA taxes versus personal taxes.
This Expert Tip is sponsored by RealtyMogul.com, B2R Finance, and AceBusinessFunding.com.
Clay: When I’m teaching classes, one of the things that I think often confuses people is exactly how their personal income tax is affected by what’s happening in their IRA. One of the biggest confusions is that the earnings, the contributions that you’ve made to your IRA, will somehow affect your personal taxes, or that it’s limited by the annual contribution limit. So it’s important to keep in mind that your personal income tax world and your IRA tax world really is affected by two mechanisms. Contributions, which is cash in, and distribution, which is cash in or assets out.
And typically speaking, those are the only things that are going to affect your personal income taxes while the money is, while the contributions are in the IRA, they make money in a tax deferred state. So there’s no limit to how much money those contributions can make. If you made $20,000 of contributions over the years and it made 20 million, that would still be okay, and it wouldn’t affect your personal income tax.
Now there are other taxes that might affect what’s going on in terms of the way you invest within your IRA, but even that would stay contained by your IRA. So remember, it’s contributions and distributions that provide the bridge between the mechanism of your IRA and your personal taxes. But once that money is in that tax-advantaged state, you can let it fly, and hopefully it makes as much money as it possibly can, because there’s no limit to that and all of it is going to be for your benefit when you take distributions later.
Mike: We’d like to thank Specialized IRA Services, National Real Estate Insurance Group, and VirtualStaffNow.com.
Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.