As any working American knows, taxes are a part of life; that doesn’t necessarily change once you hit your golden years. Indeed, one thing that should be on your radar as you make your retirement plans is finding income sources that don’t incur major tax burdens. There are a number of retirement income sources to keep in mind, including the three we’re including here. If you have any further questions about these income streams, we invite you to contact an advisor from Stonepath Wealth Management at your next opportunity.
3 Options for Tax-Free Retirement Income
- Roth IRA or Roth 401(k) withdrawals. When you save for retirement using a traditional IRA or 401(k), it gives you immediate tax benefits. The downside is that you have to pay taxes on the money you withdraw. A Roth IRA or Roth 401(k) essentially flips this formula; you won’t get the tax break on the front end, but all of the dollars, including the gains, can later be taken completely tax-free. (Important note: In general, you can withdraw earnings without penalties or taxes as long as you’re 59½ or older and you’ve owned the account for at least five years. Your withdrawals may be subject to taxes and a 10 percent penalty, depending on your age and whether you meet the requirements of the 5-year rule.)
- Municipal bonds. Bonds can be a wise addition to a retirement plan, and municipal bonds can be especially advantageous, as you can often avoid paying any taxes on the interest payments they give you. Much of the time, municipal bonds are free of federal tax obligations, and if you buy bonds issued in your home state, you can also avoid paying state-level taxes.
- Withdrawals from a Health Savings Account (HSA). High-deductible health insurance plans may give you the option to fund an HSA. You can carry these saved funds from year to year, without worrying about an expiration date, and use them to pay off medical expenses that arise. Contributions to an HSA are tax-deductible, and withdrawals from the HSA, including growth, are not taxed if the funds are used for eligible medical expenses. After age 65, you can use the money in your HSA just like funds in your IRA; meaning, you can take withdrawals, even ones that aren’t used for medical reasons, without incurring any penalty. (You may still pay taxes on these withdrawals, as with an IRA.)
Speak with a Stonepath Wealth Management Advisor
These are a few examples of how you can attain retirement income without facing heavy taxation. These income sources can all be smart additions to your existing retirement plan, though it is important to ensure that you are utilizing them strategically. That’s something a wealth advisor can assist you with.
To learn more, or to speak with an advisor about how these income forms can fit into your retirement plan, reach out to Stonepath Wealth Management at your next convenience.
Disclosure: Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.