Most financial advisors agree that death and taxes are vital considerations when you make financial decisions for your future. The right tax retirement planning is essential. With proper planning though, you can ensure regular income after retirement, without worrying about the taxes.
Top 5 Retirement Moves You Can Still Make This Year
Here are five ways how you can earn tax-free income in retirement.
Some people do not consider a life insurance policy just because they do not want another monthly expense. However, a life insurance policy can be a great way to bridge the gap to financial freedom if you are already in the high tax bracket. While a life insurance policy might not get you a tax deduction for your premiums, the money will increase tax-free.
Health Savings Account
The right health insurance will help you save more. It is a triple whammy if you are looking for tax-free income – you get a tax deduction for your contributions, the growth and if appropriately handled, withdrawals are also tax-free. You can use the account to pay for current medical expenses or let it grow with the interest compounding along the way.
When you utilize a ROTH IRA, you will be depositing a certain amount of money. For example – if you contributed $5,500 per year from the time you were 22 years of age until the age of 65, and earn interest at the rate of 10% per year, you would have more than $3.25 million at the time of retirement. It is the magic of compounding which in turn leads to tax-free income.
Government bonds or funds
These funds are usually tax-free when it comes to federal income taxes. However, they may be subject to certain state income taxes. This is the reason why these bonds tend to offer a rate of less interest as compared to the other taxable bonds.
ROTH 401 (k)
A Roth 401(k) is another excellent way to ensure that you receive tax-free income. Similar to a ROTH IRA, your withdrawal amount and the compounding over the years is tax-free. You can contribute $18, 500 per year. However, you may have to pay taxes on your contributions.
Being proactive and developing a plan to manage your finances effectively is the key. This will help ensure a comfortable retirement. There might be several other income sources that may be taxed. However, it all depends on how you manage your finances and in a way, learn different options to have more income to yourself than passing it onto the respective tax agencies.