Retirement is something that many people dream about and work hard to prepare for. Finding new ways to save and invest your money can help you reach your retirement goals. One way to give your retirement account a boost is with tax free income. Creating tax free retirement plans can add a significant amount of money to what you currently have saved. If you are interested in learning about how to earn tax free retirement income, this article is for you. Here are 7 main sources that can help you earn tax free retirement income.
Distributions From Your Health Savings Account
One of the easiest tax free retirement incomes that you can take advantage of is distributing funds from your HSA accounts. Health Savings accounts are traditionally known for the tax advantages they offer. Whenever you make contributions to this type of account, they are tax-deductible. Health Savings accounts also allow you to grow your money tax free. When it’s time to withdraw your funds, as long as you are using the funds for eligible medical expenses, you won’t be taxed. Under most circumstances, you never pay federal taxes on your HSA contributions. It is always a great idea to make sure you are following the IRS rules to continue to enjoy the tax free retirement income from a Health Savings Account.
Social Security Benefits
Another form of tax free income could come from Social Security Benefits. While these benefits aren’t always tax free when you retire, there are some circumstances where they are. To avoid federal taxes on your Social Security benefits, your provisional income must fall below a certain amount. This amount is your income that is not from Social Security plus half of your annual benefits. The income amounts are below $25,000 if you are a single tax filer or $34,000 if you are a joint filer. It is also important to note that you will avoid paying taxes on your Social Security benefits if you live in one of the 37 states that don’t tax Social Security. This is just another way to get tax free retirement income.
Proceeds From Selling Your Home
When you retire, you may consider downsizing. That means selling the home you currently own. There are circumstances where the capital gains you receive from selling your home are not subjected to federal income tax. It all depends on the amount you will make from selling your home. For instance, if you qualify, you can exclude up to $250,000 from the sale proceeds from your income. If you are married, that amount doubles. To qualify for this tax advantage, you have to have owned your property and used it as your primary house for at least two years within a five-year period. This has to be before selling your home, or you won’t qualify.
Tax Free Retirement Income From Your Pension
If you have a pension, you are a very lucky person. Pensions can offer you so additional tax free retirement income in some cases. Tax benefits for your pension depend on the contributions made to it. If there were after-tax dollars contributed to your pension, the payments will be partially taxable. The part of your pension payment that represents any return of the after-tax amount you paid won’t be taxed. This means you will receive some tax free retirement income.
Municipal Bonds
Another way to get tax free retirement income is through municipal bonds. As you shift into retirement, you want to find investments that are less risky. This usually means choosing investment vehicles like bonds and not stocks. Municipal bonds provide semiannual interest payments that you won’t have to pay taxes on. Since Municipal bonds are issued by cities, states, and other localities, the interest is exempt from federal taxes. It is also important to note that when municipal bonds are issued by your resident state, you don’t have to pay local or state taxes on them.
Life Insurance Policy With Cash Value
Life insurance is one of the most important types of insurances you can have. In retirement, it can be an extra benefit because it can provide you with some tax free retirement income. In order for you to benefit from life insurance in this way, you can’t have a term life policy; rather, you must have a whole life insurance policy. When you have a whole life insurance policy in play, it can build cash value over time. If you wanted to cash out any or all of those funds while in retirement, you can do a tax free withdrawal.
Distributions From a Roth IRA
One more way to get tax free retirement income is by making a distribution from a Roth IRA. It is important to understand that some retirement accounts will have pre-tax or after-tax savings. Yet, with a ROTH IRA, you can take withdrawals while you are retired without owing any taxes. You want to ensure you have had your ROTH IRA for a minimum of five years before withdrawing from it. Once you have met that requirement, you can withdraw from your account without paying any taxes.
Get More Out of Your Retirement Income
Tax free retirement income can provide you with more peace of mind about your finances. Using any of these tax free retirement strategies can give you the retirement lifestyle you deserve. If you need help planning for your retirement or want to learn how to make your money work for you, contact us today!
