Find out if one these tax-free income strategies may make sense for you

Part of a tax-smart game plan for retirement is to consider tax-free income strategies, which can be an important component of your overall retirement portfolio.

Roth IRA

A Roth IRA can provide a way to grow tax-free retirement income. In order for a distribution of earnings from a Roth IRA to be a tax-free distribution, it may not occur until five years from the first contribution to a Roth IRA and you are at least 59½ or you are disabled, you meet the requirements for the purchase of a first home (up to a $10,000 maximum lifetime limit) or die. Unlike Traditional IRAs, Roth IRAs are funded with after-tax contributions.

Your eligibility to open a new Roth IRA or contribute to an existing account will depend on your current-year income and tax filing status. Talk to your financial and tax professionals to see if you are eligible.

Tax-exempt bonds

Here are two ways that can help you earn tax-exempt interest from bonds1:

  1. Treasury Securities: Interest from these securities is exempt from state and local income tax (but not exempt from federal tax). In addition, Treasury securities are backed by the full faith and credit of the U.S. government.

  2. Municipal bonds: Municipal bonds are bonds issued by states, cities, counties and other local government entities. They are generally exempt from federal income tax, as well as tax of the issuing state or locality provided you live in the state in which the bond was issued. The gain on the sale of a municipal bond may be subject to capital gains tax. Both interest and gains may be subject to alternative minimum tax. Municipal bonds are not backed by the U.S. government; they are backed by the full faith and credit of the issuer.

In addition to individual tax-exempt bonds, you may want to consider mutual funds that invest in these types of securities.2

Life insurance

While life insurance benefits are traditionally paid at death, some life insurance products may provide you with access to a portion of the cash value that you can use for retirement income, provided certain conditions are met. Such withdrawals may be excludable from federal taxable income to the extent there is basis in the policy under current federal income tax laws.3 Please see your financial professional for more information. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Did you know?

When it comes to saving and investing, there are essentially three different types of accounts:

  1. Taxable: Taxes are due on investment income in the year in which it is received.
  2. Tax-Deferred: Taxes are not due on investment income until withdrawn.
  3. Tax-Free: Investment income may be exempt from federal, state and/or local taxes. 

Ask your financial and tax professionals for more information.

 

Take action for your financial future

As you prepare for your financial future, it may make sense to periodically review your retirement savings and investment strategies from a tax perspective.

  • Identify tax-smart strategies with your financial and tax professionals. They can be good resources for evaluating your tax liabilities and potentially identifying ways of reducing your tax burden in the future.
  • Discuss tax-free investments with your financial professional – such as Roth IRAs, tax-exempt bonds, and certain life insurance products – and see if they may make sense for you. 

 

Action is everything. Talk to your financial and tax professionals about tax-smart strategies for retirement today. 


1 Keep in mind, interest rates and bond prices typically move inversely to each other. Therefore, as with any bond, the value of the investment may go up or down in response to changes in interest rates.

2 It is important to note that mutual funds are subject to investment risks and are not backed by the U.S. government. Please carefully read a fund’s prospectus for details on the fees, expenses and risks of the fund(s).

3 Tax impacts are different if the life insurance policy is considered a modified endowment contract (MEC). Please discuss with your legal, tax or financial professional if you have questions.

 

Please seek the advice of an independent tax professional or attorney for more complete information concerning your particular circumstances and any tax statements made in this material.

 

Guarantees are backed by the claims paying ability of the issuing insurance company.

 

Investing involves risk, including the possible loss of principal. Investment values will fluctuate and there is no assurance that the objective of any fund will be achieved. Mutual fund shares are redeemable at the then-current net asset value, which may be more or less than their original cost.

 

Investors should carefully assess the risks associated with an investment in the fund.