Tax-Free Retirement Income Strategies

Reducing Tax Exposure

One of the important goals of any retirement strategy is to ensure tax diversification among your assets, making sure that at least part of your assets can provide tax free income  Taxes can be one of the biggest expenses retirees face, and because of the growing federal deficit, taxes will more than likely increase in the future.


With proper planning today, you can help minimize your tax exposure and take steps to help protect your retirement security.  A variety of investments can be used to help you generate tax-free retirement income.  Below are some tax free strategies that you should consider adding to your portfolio.

Roth IRA

With Roth IRAs, your contributions are not tax-deductible, using after tax dollars.  You will benefit from tax deferred growth on the funds inside the account.  The major advantage of the Roth IRA, is on the back side, after you have retired.  The Roth ira enables your withdrawals after you reach age 59 1/2  and after the plan has been in place for five years, to come out TAX FREE, probably at a time when tax rates will be higher.  So you give up a small upfront tax deduction, for a much larger lifetime of tax free withdrawals later on.


Consider using a Roth IRA  as a tax-free retirement income strategy.  One drawback is that the IRS caps how much you can contribute each year, but does allow those over age 50 to make higher "catch-up" contributions. Also, if your income is too high, the IRS has phase outs that may keep you from utilizing this strategy.

Life Insurance

"Permanent insurance" includes a number of different insurance types, such as whole life, universal, and indexed.  Each has its own set of features and benefits, but the main advantage they all share is that your cash value grows tax-deferred.


Permanent insurance enables you to withdraw  tax-free retirement income using a combination of strategies . This means that you could use your permanent life insurance policy as a tax-free income retirement strategy.  In fact there are certain permanent life insurance policies that can be set up specifically to maximize tax free lifetime income.  Even better, there are no IRS caps on how much you can put in and no high income phase out like with ROTH iras.

Municipal Bonds

Many state and local governments as well as nonprofit entities, such as hospitals and housing authorities issue municipal bonds to raise capital.  The interest on these bonds is paid tax-free to the bond holder, both State and Federal if you buy one issued in the state that you live.  You can buy them as individual bonds, or you want more diversification, there mutual funds that specialize in tax free municipal bonds and UITs.


One important thing to remember is that if you sell a tax free municipal bond for a gain, that gain could be considered taxable.  Otherwise, municipal bonds can be another great tax free income strategy  during your retirement years.


For help with Tax-Free Retirement Income Strategies or Tax Free Strategies, please give us a call today!


Health Savings Account (HSA)

HSAs are not a "true" source of tax-free income for retirement, but can be used that can be used to offset qualified medical expenses and can be very beneficial when it comes to reducing your health care costs in retirement at a time when your health may change and costs start increasing.


HSAs allow you to make tax deductible contributions.  These can grow tax deferred/tax free as long as they stay in the account.  You can then withdraw money tax free to pay for approved medical expenses like doctors visits and prescriptions, even long-term care insurance premiums. HSAs can be a great tax free add on to a tax free retirement income strategy.


Are you ready to sit down and design your tax-free retirement income strategy?  We can help you analyze your needs, show you the best alternatives and help set up your plan and then help monitor it.  Call us today at (804) 234-8534.