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Believe it or not, there are ways to convert taxable incomeinto non-taxable income, without any fear of an IRS audit.

Here's one of my favorites. It's been part of ourtax code for over 30 years, yet many still don't takeadvantage of it.

What am I talking about?

The IRA -- Individual Retirement Account.

Now, before you say, "Oh, I know all about that one; what'sso great about an IRA?", give me 10 minutes to explain 3 newbenefits to the IRA rules that you may not realize.

BENEFIT #1: How To Avoid Tax Rather Than Postpone Tax

First, did you know that there are now 2 kinds of IRA'savailable?

The so-called Traditional IRA is the one that first cameout way back in the 1970's.

But there's a newer version of the IRA that's only a fewyears old -- it's called the Roth IRA. And the differencebetween these 2 IRA's is huge.

Traditional IRA contributions are tax-deductible, resultingin immediate tax savings. The growth of those contributionsis also tax-sheltered while the funds remain in the account.

But eventually all tax-deductible Traditional IRAcontributions, as well as the growth of those contributions,will be subject to income tax when the money is withdrawnfrom the account.

In other words, Traditional IRA's offer the opportunity totemporarily postpone taxes.

In contrast, the Roth IRA offers the opportunity topermanently avoid taxes. With a Roth IRA, you don't takea deduction for your contributions; instead, you makea contribution with "after-tax" dollars.

Whatever you put in not only grows tax-free, but canalso be withdrawn tax-free.

Here's an example to illustrate:

If you invest $2,000 per year for 20 years into a Roth IRA,you will have invested a total of $40,000. Now if that RothIRA earns an average of 10% per year, that $40,000 willgrow into $126,005.

Now comes the fun part: Assuming the IRA has existed for atleast 5 years and you are at least 59 * years old, you canwithdraw the entire $126,005 tax free.

In contrast, if this money had been invested in aTraditional IRA, the entire $126,005 would be subject toincome tax as it is withdrawn.

The $86,005 of growth is magically converted from taxableincome to non-taxable income. Assuming you are in the 15%federal tax bracket, that's a savings of $12,901. Add anystate income tax, and you could save over $15,000 intaxes.

BENEFIT #2: Take An Extra 3 * Months To Fund Your IRA

The deadline for contributing to your IRA is April 15 of theyear AFTER the year for which the contribution made.

So for Year 2005, you have until April 15, 2006to put money into your IRA.

If you've already invested the maximum (more about that in amoment) by December 31, 2005, then you're done. No moremoney can go into the IRA for 2005.

But if you haven't maxed out your IRA, you have untilApril 15 to do so.

Which brings me to . . .

BENEFIT #3: The Maximum Contribution Amounts Have Increased

For many years, the most you could put into an IRA was$2,000. Now, the maximum is $4,000 (assuming you have atleast that much earned income from wages or self-employmentincome).

And if you are over 49, you can put in another $500,bringing the total maximum to $4,500.

A married couple, both age 50 or older, can put a whopping$9,000 per year into a IRA. Not too shabby, eh?

One final note about these Roth IRA rules: For marriedpeople, you can only contribute the maximum of $4,000 or$4,500 if your combined income is less than $150,000.

If you are single or head of household, you can contributethe maximum if your income is less than $95,000.

For most middle-class folks looking for a perfectly legalway to permanently avoid tax (rather then merely temporarilypostpone tax), the Roth IRA fits the bill.

Now comes the hard part -- how to actually implement thistax avoidance strategy.

"We'd like to save as much as we can for our golden years.But $9,000 a year? It's hard to put aside that kind ofmoney. We need every dollar we make just to pay the bills."

If that's your situation, I'm not going to get up on my"what-do-you-mean-you-can't-save-any-money-for-retirement"soapbox and start preaching at you.

I will say this: You've got to start somewhere, and you'vegot to start saving something, don't you?

People who have a problem saving for retirement usually havea budgeting problem. For an excellent resource onbudgeting, I highly recommend the Budget Stretcher web site:

http://www.homemoneyhelp.com.

This site offers a free budget system complete with simpleforms and worksheets to help you figure out how to put somemoney aside for a Roth IRA or other savings plan.

Take advantage of this resource and get started today.