Tax Free Retirement Planning

Many experts tell us there are No Tax Free Accounts but they would be wrong. It is extremely important to have several options in income sources, but most important are tax free accounts. 

Tax rates are going up for a all of us, starting with the expiration of the Bush tax cuts at the end of 2010. Now is the time for baby boomers to think about and make plans for generating tax free retirement income. 

Do not confuse Tax Free with Tax Deffered - let me explain!

Tax Free  - Free from paying taxation ( that was simple ). Your income, your money, your return growth, your control, and all of it is tax free.

Tax Deferred -Investment earnings such as interest, dividends or capital gains that accumulate tax free until the investor withdraws and takes possession of them. The taxation kicks in, depending on many factors as to the Investments will determine the amount taxable.

Life Insurance. This is actually taking the Financial World by Storm, it is the fastest growing option to not only leverage your Income, but create a Tax Free Distribution Retirement account. These Life programs are no longer just the typical death benefit anymore and if properly structured will out perform any other programs on the market.

Roth 401(k). Less available and even less well-known is the Roth 401(k). Some 401(k) plans and administrators permit employees to designate part or all of their 401(k) contributions as Roth contributions so that all withdrawals from the Roth component are tax-free. 

Municipal  Bonds. Most investors know that municipal bonds generate income that is free from federal income tax and also from state income tax in the state where the bonds are issued. Although muni bonds and funds took a hit in 2008, they have begun to recover.  

Residential Home Sale Capital Gains. If you sell your main home to downsize or to relocate to a less expensive area, you can exclude up $250,000 of your capital gains from taxes. ($500,000 if you are married). That is a fantastic way to generate spendable income tax-free. If you have a second home or vacation home, the rules on capital gains taxation have changed.

Pension and Annuity Income. If you have a cash basis in an income annuity or pension (meaning that you contributed to it), some of the income that you receive will not be taxed. 

Social Security Income. If all of your retirement income comes from Social Security, you probably won’t pay any taxes. Hopefully you will have other income. The rules on taxation of Social Security benefits if you still work, or disabled,and if you have Investments can be confusing, seek a professional to properly structure your benefits.

**When you are putting together your plan to have at least some tax-free retirement income, be wary of the impact of required minimum distributions (RMD) from retirement plans which kick in at age 70 1/2.  Because RMD rules do not apply to Roth IRA and Roth 401(k) funds, they are ideal tax-free income sources.

If you are considering Retirement Planning, call for a free consultation today.