Tax Guy explains how to take advantage of tax-free income opportunities.
There are still ways to earn tax-free income. This is the first of our updated two-part series on the best federal-income-tax-free opportunities for individual taxpayers. Here goes.Unlike withdrawals from traditional IRAs, qualified Roth IRA withdrawals are federal-income-tax-free . What is a qualified withdrawal? It’s one that’s taken after you’ve met both of the following requirements:2. You’ve reached age 59½, are disabled, or deceased.
Basically, earned income means wage and salary income , self-employment income, and alimony received under a pre-2019 divorce decree. * If you’re unmarried with provisional income below $25,000, 100% of your benefits are tax-free. With provisional income between $25,000 and $34,000, you’ll be taxed on up to 50% of your benefits. Above $34,000, you could be taxed on up to 85%.
The point is, at least 15% of your Social Security benefits will be tax free and maybe more, potentially up to 100%, depending on your provisional income. As a bonus, some states exempt all or part of your Social Security benefits from state income taxes. For example, Colorado exempts the first $24,000 from state income tax.
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