5 Types of Non-Taxable Retirement Income

Retirement

5 Types of Non-Taxable Retirement Income

Posted by Infinite Wealth Advisors, LLC
2 months ago | October 17, 2022

The last thing anyone wants to receive is a surprise income tax bill. But when you’re retired, unexpected taxes can really disturb your budget. That’s why we advise clients to become aware of the income taxes they will likely face in their situations.

But another way to deal with this possibility is to establish some forms of non-taxable income in retirement. You can do that in these five primary ways…

A Roth 401k or IRA. Unlike traditional retirement accounts, contributions to a Roth account are made on an after-tax basis. You won’t earn a potentially valuable tax reduction for making these contributions, but you can enjoy tax-free income from the withdrawals after you retire.

Life insurance benefits. The payout from a life insurance policy is non-taxable, but of course that doesn’t help the deceased person. Still, a life insurance policy is one way to leave non-taxable income to your spouse.

Municipal bonds. Sold by city and sometimes state governments, municipal bonds allow the public to fund certain projects like roads and schools while enjoying interest on the money at a later date. Municipal bonds are considered non-taxable income by the federal government, and sometimes state governments as well.

Health Savings Account withdrawals. An HSA is viewed as a great way for those on high-deductible healthcare plans to stash money to pay for medical expenses later. But you can roll that money over each year, and even into retirement, so an HSA can also be used to fund medical expenses at that point. And since withdrawals used for qualifying healthcare expenses are non-taxable, an HSA could be considered a form of non-taxable income for retirees.

Social Security benefits. Social Security benefits won’t be taxed, as long as your total income for the year does not exceed certain thresholds. However, that can easily happen if you’ve established other forms of taxable income in retirement. So depending on your situation, you might consider pairing Social Security with other forms of non-taxable income.

As you can see, the issue of income taxes in retirement can quickly become complicated. Let’s meet regularly to review your retirement plan so that you’re informed on all of the income-generating opportunities available to you. We will also help you to calculate your approximate tax liability, so that you can make decisions about the type of income you want to establish.

Have questions? Need assistance?

Use the form below to schedule an appointment.

    Call 877-281-8282 or email kevin@infinitewealthadvisors.com to speak with an agent.