Tax Free Retirement
It is important to save as much money as you can for retirement. While we all know that we should be focused on saving, many people struggle to have enough saved up to live on when they reach retirement age. You don’t want to be one of those folks that is ill-prepared, whether due to waiting too long, or not properly planning their spending. Paying taxes on your retirement funds adds another level of complexity to deal with and can often make retirement feel as much a burden as an achievement. Our experts can help you plan a tax-free retirement so that you can fully enjoy your golden years.
Why is a Tax-Free Retirement Important?
Everyone wants to live comfortably, especially when they have worked throughout their life to achieve financial independence. Realizing you must still pay taxes during retirement can be stressful, and it could potentially cost you money that was intended for other purposes. There are quite a few tax types that can affect you during retirement, including the marriage penalty, and, if you receive Social Security, 85% of it can be taxed. These factors make it extremely beneficial to plan ahead and invest in tax-free retirement accounts.
How Can I Have a Tax-Free Retirement?
Our financial planning experts have a wealth of knowledge and can help you formulate the right strategy for your retirement savings, no matter where you are in life. Here’s how our professionals can help you.
A Roth IRA
While a Roth IRA is considered to be a starter account by some investors, it can help earn you a tax-free retirement. You can invest $5,500 per year into a Roth IRA, but the contributions are not tax deductible. However, the money is not taxed as it grows, and it can be withdrawn tax-free when you are ready to retire.
There are income stipulations on who can open a Roth IRA. These retirement accounts are only available to couples who earn less than $189,000 a year, and single persons who make less than $135,000 a year.
Roth 401(k) and 403(b)
A Roth 401(k) or 403(b) is another option for a tax-free retirement. This plan does not have income restrictions, and you can deposit much more than you can with a Roth IRA. With a Roth 401(k) or 403(b), you can deposit $18,500 a year, and, if you are 50 years of age or over, you can deposit an additional $6,000. Contributions into the accounts are taxed, but you do not have to pay taxes when you withdraw the money.
Municipal Bonds and Funds
When withdrawing money from municipal bonds and funds, you do not have to pay federal taxes, but state taxes still apply. The inability of the federal government to tax these bonds results in a lower interest rate than the rates of fully taxable bonds and trusts. The bonds are tax-free, but the gains from your investments may still be taxable.
This type in investment has a high potential of risk due to the rising rate of the stock market. Default is another risk associated with bonds and trusts. One instance of default was when Detroit defaulted on its bonds. The risks and the various taxes that are still applied to bonds and funds make them options that should be carefully considered before invested into. They may not be beneficial in all financial situations.
Health Savings Account
A health savings account is an investment account that many people do not consider when thinking about investing. With a health savings account, contributions are tax-deductible, growth is tax-free, and the money is not taxed when withdrawn.
However, you must have a certain type of insurance to take advantage of this type of account. This plan was originally created to pay for current medical bills, but there is no fine print that specifies when you must use the money. Many recommend allowing the account to grow until retirement, and then you can reimburse yourself for past medical bills. These expenses can also include Medicare premiums. However, you can only contribute $3,450 a year, $4,450 if you are 55 or older, and you must keep the receipts of your medical expenses.
The Bottom Line
There are many routes you can take to achieve a tax-free retirement, and it is always important to talk to our financial experts about your specific situation. They have the know-how to create a customized retirement plan for you while helping you reach your financial goals. You want to become financially liberated, and we want to help you get there.