Comments on: The Completely Tax Free Roth IRA: Strange Ways to Save

By: Self Directed Investing For Retirement Carnival – Extended Market Edition

Self Directed Investing For Retirement Carnival – Extended Market Edition — Tue, 28 Feb 2012 12:23:44 +0000

[...] at Saving Advice submitted The Completely Tax Free Roth IRA: Strange Ways to Save. Is it possible to create a Roth IRA that carries no tax burden whatsoever? I have a friend who is [...]

By: jaine

jaine — Sat, 12 Jun 2010 20:29:34 +0000

I think it’s smart as long as it’s not his only retirement saving strategy.

By: Imtos

Imtos — Thu, 10 Jun 2010 15:44:39 +0000

This post makes no sense. Money is fungible, so what you do with a particular amount of money does not matter.
In other words, once you “earn” a dollar, what you do with that particular dollar is unimportant since that particular dollar can be replaced by any of your other dollars, and most importantly, your economic situation would not change!
If you take a dollar from your left hand and buy candy and take a dollar from your right hand and invest it in a Roth IRA is no different from doing the opposite.
The economic principle here is that by investing his “found” money in a Roth IRA, your friend has freed up resources that he can now allocate to something different.

By: Gail

Gail — Thu, 10 Jun 2010 01:38:16 +0000

I think if it means he is putting more money away for retirement, it doesn’t matter. It isn’t unethical in the least as long as he stays within the income guidelines for these contributions. Any trick that gets an American to put away more money for retirement is a good idea. We are given brains to think up solutions and I think that this guy is making sure he doesn’t waste money that comes his way. Kudos to him! Not sure why everyone thinks he is nuts. What difference if he saves his spare change in a jar or in a bank account (other than the account will gorw and the jar will get dusty). I have long wondered how much money a person could collect from those types of sources were it all saved in one place, so this was very interesting to me.

I personally am toying with the idea since I am older of maxing out my IRA before my husbands so that we can access the money, if needed, sooner than dividing amounts equally and possibly having to pay a fee if we have to tap his.

By: dfeucht

dfeucht — Wed, 09 Jun 2010 17:20:41 +0000

Well if the user put this “tax-free” money into a Traditional IRA, he/she could then deduct the money from their income taxes this year. So is it really tax-free? No it’s just semantics. If it makes them feel better and helps them save, more power to them.

By: Monkey Mama

Monkey Mama — Wed, 09 Jun 2010 15:51:31 +0000

I think it’s smart! (Cheating? Pfffffft).

I do hope anyone would consider maxing out their ROTH, rather than *just* putting tax-free money in, is all.

To the above poster – credit card rewards are not taxable, and gifts are never taxable to the recipient.

By: Joan

Joan — Wed, 09 Jun 2010 15:40:22 +0000

I was thinking that with rebates (cash-back) you have already paid the income tax. They are simply giving you back a portion of your money; you paid income tax on it when you earned it. If it is not your own money being returned, then it seems to me that it is new income and that one is supposed to report it and pay income tax on it. Money found on the street? I have no idea! Gifts? I guess in some circumstances they would be taxable to the recipient, but nobody gives me gifts anyway, so personally I could build no account of any kind with gifts. How long has it taken your friend to build up $5000 in such money? It would take me more than a lifetime, I’m afraid.

By: Miki

Miki — Wed, 09 Jun 2010 14:47:14 +0000

I would not consider the source as tax-free income. Cashback cards are usually a small percentage rebate on purchases. So in order to get this “income”, he has to spend close to 100 times more.

So this whole idea is stupid.

He IS paying taxes on his deposit income, even if he thinks he’s not.

By: snshijuptr

snshijuptr — Wed, 09 Jun 2010 14:32:28 +0000

This also represents an unhealthy view of taxes. Taxes are not some horrible punishment or burden, they are our dues for belonging to this amazing, modern, welfare-d country. You wouldn’t complain about a gym charging you to be a member nor the girl scouts charging for your daughter to join, so why do you complain about your taxes like they do nothing for you?

By: WhiteEyebrows

WhiteEyebrows — Wed, 09 Jun 2010 12:39:24 +0000

To me, this attitude represents an unhealthy view of savings and taxes.

The amount of untaxed income he has in a year does not change based on the fact that he carefully misers away only the untaxed dollars and cents into his Roth. There would be nothing different in this situation if he put all his gifts and non-taxable income into his savings account (or any account for that matter), and then making standard, regular contributions from that savings into his Roth. He’d probably be more apt to contribute more (even some *gasp* taxed dollars) into this Roth and thus reap a much larger gain for retirement, if he wasn’t so focused on ‘sticking’ it to someone. (When, ironically, he’s not really sticking it to anyone…)