Does the idea of a tax-free retirement sound appealing? If so, you’re not alone. 

With taxes on your income and investments as well as an ever-increasing life expectancy, it’s more important than ever to know how to avoid paying taxes when you retire. 

This article will cover specific strategies that can help you enjoy a tax-free retirement: IRA, Roth IRA, 401(k), HSAs, Cash Value Life Insurance.


Why a Low or No Tax Strategy is So Important Now!


tax-free retirement income


While the taxpayer debt continues to skyrocket as elected officials continue to spend money we don’t have, this new administration will have no other option but to lay the massive debt at the feet of the American taxpayer.

Knowing this, mitigation strategies should become a top priority for all working Americans who are planning for retirement.

There are some solid strategies that we can take advantage of to enjoy low or even tax-free retirement benefits! 

It’s important to start saving now so that you don’t run into any huge problems when it comes time for retirement. You’ll want to be able to grow your money as much as possible while at the same time, protecting your retirement income from a tax-hungry congress.


Start with a Roth IRA


You should begin your planning by putting as much money as possible in a Roth IRA account. Current limits are $5,500 annually or $6,500 if you are 50 or older.

You won’t get a deduction on your contributions but the money will grow tax-free and can be withdrawn tax-free.

Yes, there are some pesky constraints and limits on how much you can contribute, never overlook that you withdraw the funds without writing a check to the IRS.

Additionally, when you combine your Roth IRA with other strategies we’ll discuss, you’ll soon understand how that account becomes an important cog in your wealth-building machine.

Concentrate on a handful of accounts and the compounded interest they’ll earn over your lifetime.


Next Up is the Roth 401(k) or Roth 403(b)


A Roth 401(k) or a Roth 403(b) is another way to build tax-free retirement funds. You can put up to $18,500 of your pre-tax income in the account every year and it will grow free from taxation. Plus, you’ll be able to withdraw those earnings at any time without paying taxes

In the same way that a Roth IRA is designed to work for income earned from wages, salaries, and self-employment income, so too does the Roth 403(b) function as an excellent account option for those in public service.

Contributions are made on pre-taxed dollars which means all of your money grows tax-free with no taxes owed when you begin your withdrawals in retirement.


Don’t Forget Health Savings Accounts


HSAs are typically a focus for individuals who want to reduce their healthcare insurance costs.

Although you’ll need to have high-deductible health insurance to make this work, the tax mitigation that HSAs bring to the table should not be overlooked.

Contributions are made on pre-taxed dollars which means all of your money grows tax-free with no taxes owed when you begin to withdraw funds in retirement.

HSAs provide a triple tax advantage: they allow for an individual or family to save, invest and spend their health care dollars without worrying about the impact on future financial goals.

Yes, HSAs are intended to be used for medical expenses, but you do not have to withdraw the funds unless you want to. Instead, you can let those contributions grow and earn compounded interest and then withdraw funds by reimbursing yourself for medical expenses you paid out-of-pocket (receipts should be kept), and any Medicare Part B premiums you’ve paid.

There is, however, a contribution limit of $3,450 annually or up to $4,450 if you’re 55 or above.


And More Importantly – Cash Value Life Insurance


whole life insurance


Over the last decade or two, more and more people have been turning to cash-value life insurance as a strategic planning tool for a tax-exempt retirement planning tool.

Whole Life Insurance is typically considered as the better life insurance tool for retirement planning because a participating policy will earn dividends that can be used to purchase paid-up additional life insurance which also earns tax-deferred interest and more dividends.

Additionally, since dividends are considered a return of overpaid premiums to the policyholder they are exempt from tax liability.

Whole Life Insurance policies earn tax-deferred interest that is compounded annually without disruption since any loans taken will not impact the amount of interest you earn or have an effect on dividends if you purchase the appropriate policy.

Moreover, mutual insurers (the ones that typically pay dividends) are generally rated higher than stock insurers because the company’s focus is on its members (policyholders) rather than its stockholders.


The “appropriate policy” that was mentioned earlier has to do with life insurance loans affecting the earnings in your policy. With a non-direct recognition company, the earnings on your policy’s cash value are unaffected by policy loans against the cash value, whereas, with a direct recognition company, the earnings on cash value loans are affected when the cash value is collateralized for a loan.

When borrowing against your cash value account (cash is collateralized not withdrawn) with a direct recognition company, the interest earnings are disrupted which impacts the magic of compounding.

The two most important things you can do when using whole life insurance for a tax-exempt income string are:

  1. Only use a mutual insurance company
  2. Make certain the company is a non-direct recognition company


Lastly, do not forget the importance of a guaranteed death benefit for your beneficiary or beneficiaries, and the living benefits rider that is generally offered at no additional charge.


In conclusion, if hard-working taxpayers will step out of the traditional investment box and use some or all of the investment strategies listed above, considerably less of your income stream will be affected by your tax-starved government.


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Curt Gibbs