Tax-Free Retirement

Tax-Free Retirement

Is tax-free retirement possible? YES, it is! So is the big secret to tax-free retirement tax evasion? Absolutely not! Is it some new product? No!

To begin, Americans face two threats to their retirement nest egg: outliving their nest egg and losing it to heavy, immediate, and unnecessary taxation. That’s the bad news. The good news is that substantial tax advantages allow people with retirement savings to create enormous tax-deferred and even tax-free wealth for themselves and their families.

Most people are already familiar with typical taxable investment plans, which include tax-deferred assets such as stocks, mutual funds, bonds, traditional IRAs, 401(k)s, and 403(b)s. But a tax-free retirement strategy may be possible for some Americans through careful planning. However, the appropriate tax-free plan must be in place today rather than tomorrow. Once the opportunities are lost, they are sometimes impossible to recapture and use to benefit you, your family, or your business.

Tax Diversification

Understanding tax diversification can be a massive benefit for you and your family. The subject of tax diversification often arises when topics such as mutual funds, stocks, bonds, real estate, and other investment classes are on the table. However, what about tax diversification? Are you familiar with available strategies to help you spread your investments across taxable, tax-deferred, and tax-free accounts?

The primary reason for developing a tax diversification strategy is that it’s impossible to know your tax rate throughout your retirement, especially if your retirement is still many years away. Based on current tax rates, you may be able to say that your retirement tax bracket will be lower than your current one. But who’s to say that your tax rates won’t change?

Putting all your investments in only one type of account is unlikely to be the most tax-efficient strategy. Tax diversification helps protect your assets and minimize risk from significant tax rate changes.

Which Bucket Do You Want?

Are We Due for a Tax Hike?

Many Americans believe taxes will continue to rise in the years ahead. Despite the widespread belief that we are paying more taxes now than ever before, the reality is we currently enjoy the second-lowest tax rates in U.S. history.

Many taxpayers are confused about the difference between a “marginal” tax rate and an “effective” tax rate. To put it simply, the difference is your “marginal” tax rate refers to your tax bracket while your “effective” tax rate refers to your actual tax percentage liability.

For example, two individuals may be in the same 24% tax bracket (marginal rate), but one may only have a tax liability of 15.2%. In contrast, the other has a tax liability of 22% (effective rate) based on their respective individual earnings. Unfortunately, this confusion can lead to poor planning decisions, primarily when investing in retirement. Overestimating one’s actual tax rate is a common mistake.

People today are more concerned than ever before about outliving their money. However, people also need to consider that as we age, there is less time to recover from losses, including market plunges.

With all the bumps in the road through your retirement years, you must map out a retirement strategy. A proper retirement income plan should include multiple sources of retirement income. At least one of those income sources should be non-taxable. This allows a retiree to coordinate various retirement income streams and minimize (or even eliminate) income taxation.

Small Business Owners: Utilizing Tax-free Strategies

Small business owners are often uninsured or grossly underinsured regarding life insurance. Why? There are many reasons, but it’s usually because of tight cash flow in the business and because some financial professionals are just not aware of the unique needs of business owners.
As a business owner, you can offer classic retirement plans such as SEP-IRAs, 401(k)s, or Solo-401(k)s. But what if there is a better option? Maybe even a tax-free option? There is no limit to how much you can contribute, and as your business needs change, you may be able to access your money as needed in the form of tax-free loans.

What do you plan to do with your business when you retire? Many small business owners today plan to sell their businesses when they retire but are unsure what to do with some of the cash they receive from the sale proceeds. There is a tax-free strategy available that permits that business owner to deposit the proceeds of the sale into an income tax-free “bucket.”

Intrigued? Contact your local retirement distribution expert to discuss how this strategy could benefit you and your business. Everyone’s needs and situations differ, but a simple review of your personal goals and/or business needs is a FREE service offered by America’s Tax Solutions® professionals and member affiliates. A tax-free strategy component may be what your overall plan is missing.

Find out all about a tax-free strategy that offers all these benefits:

  • Flexibility
  • Tax security
  • Liquidity
  • Accessibility
  • Market protection
  • Preferred-tax treatment

Tax-Free Investment Vehicles

Three common vehicles accumulate tax-free income:

  • Municipal bonds
  • Roth IRAs
  • Insurance

Remember that because every investor has different goals, financial needs, and/or limitations, discussing any retirement planning strategy with your personal retirement distributions expert, wealth preservation consultant, and/or tax professional is critical.

Municipal Bonds

Municipal bonds (“munis”) are widely considered one of the safest investments for Americans. They are essentially loans you are providing in exchange for interest payments. Local and state governments typically issue them to finance critical public works projects such as schools, sewer systems, and roadways. Once your munis matures, you get your original “loan” investment back.

Yes, you can generate tax-free income from your muni investment, but the rate of return on munis tends to be painfully low and may not be appealing for certain investors.

Roth IRA Rules

Roth IRAs allow taxpayers to accumulate tax-free funds through direct Roth IRA contributions or via conversion. Of course, funds contributed to a Roth IRA are pre-taxed, but the growth in that account will be tax-free when qualified distributions are withdrawn.

However, a downside of Roth IRAs is the low contribution limit and the inability of high-income earners to contribute to a Roth. As of 2006, Congress allowed employers to adopt a Roth 401(k) plan with much higher limits than a Roth IRA, but employers are not required to offer this option.


Specifically, Indexed Universal Life (IUL) policies can be fantastic options for certain people disappointed by the limits of the tax-deferred options available to them. High-income earners, in particular, are usually drawn to IULs because of the incredible tax benefits, liquidity, and the ability to contribute as much as they want without facing IRS-imposed contribution limits.

It’s easy for high-income earners to maximize their contributions to traditional retirement plans. IULs eliminate this limitation. Market safety is also a vital feature of a standard IUL policy—you can capture gains while avoiding market risk (principal protection).

“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t understand it, pays it.” — Albert Einstein

Tax-free Retirement Planning is Essential

Market volatility, the instability of Social Security, and the potential for higher future taxes could mean that our retirement dollars may have to work harder and last longer during retirement. Unfortunately, your existing retirement plans and overall financial and asset protection strategies may not be enough.

Would you be interested if you could put away money for the future without government-imposed contribution limitations and excessive or unnecessary taxation? What if that money could also grow tax-free, access it tax-free, and pass it on to your loved ones tax-free? Is that something people should be talking about? The answer should be obvious, yes!

If this is so great, why aren’t more people taking advantage of a tax-free retirement strategy? Candidly, because nobody is talking to them about it. Unfortunately, many financial and tax professionals are unfamiliar with the concept or don’t fully understand a tax-free retirement strategy. Hence, they are in no position to educate their clients about the available opportunities.

The professionals at America’s Tax Solutions® (ATS) are experts in this area and are available to answer your planning questions. Not every strategy is suitable for every individual, so discussing any strategy with your advisors, attorney, and/or tax professional before making investment decisions is essential. If your current advisors do not have expertise in this area, your local ATS Wealth Preservation Consultant or ATS tax professional can assist you.

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