{UAH} KALANZI taxes

 

Mr Kalanzi, 

The government uses the tax code to encourage people to save for retirement...so they offer tax incentives. 

IRA: currently, you may have a higher tax rate than you will have when you reach retirement age.  When you put money in your IRA today, it is tax free...when you wait and withdraw it on retirement, it will be taxed at a much lower rate...so you are effectively avoiding the higher tax today.

401k: the money you put in the 401k reduces the amount you leave available for taxation today.  e.g if earn $10 and $2 in the 401k, you will pay current tax on $8 instead of paying it on the full $10.  

Roth 401k: for this one, you contribute to your savings AFTER tax but if you are like Trump and expect your retirement income to very high (i.e your tax rate would be higher than your current rate, you'll benefit from Roth 401k because you will NOT be taxed on the withdrawals. 

thanks

---In UNAANET@yahoogroups.com, <nick_tar@...> wrote :

Mr. Musoke,

How is the IRA or 401k a tax avoidance? I thought the taxes are just deferred. Either I am paying the tax man now or later - right?

Thank you!

Sent from my iPhone

On Oct 1, 2016, at 9:31 PM, Joseph Musoke joseph.musoke@... [UNAANET] <UNAANET@yahoogroups.com> wrote:

Moses,

I avoid taxes every year.  I think that you are confusing tax avoidance (which is LEGAL) and tax evasion (which is ILLEGAL).   Most tax payers engage in some form of tax avoidance...e.g tax credits, deductions, putting money in your employer's retirement plans, putting money in your children's education fund, putting money in health savings accounts, individual retirement accounts (IRAs), etc.    

thanks