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4 Tax-Free Income Sources to Supplement Retirement


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Would you rather retire with taxable or tax-free income? With tax rates at historical lows, it is imperative to plan your next move before they rise in the future. Here are four tax-free income sources and their benefits.

SEE ALSO: Can You Cut Taxes You Pay on Your Social Security?

Roth IRAs

In contrast to a traditional IRA, a Roth IRA requires you to pay taxes up front on your account contributions, but after age 59½, as long as you've held the account for at least five years, you can withdraw the money and interest earned tax-free. This allows you to protect more money for retirement.

The annual contribution limit is equivalent for the traditional IRA and Roth IRA, and both are subject to income restrictions in their own ways. For 2017, the maximum contribution is $5,500 ($6,500 if age 50 or over). For Roth IRAs, if your Modified Adjusted Gross Income (MAGI) is between $118,000-$133,000 as a single individual or $186,000-$196,000 as a married couple, the amount you can contribute to a Roth IRA will be reduced. For traditional IRAs, your contribution isn't limited by your income, but the amount that you can deduct on your tax return could be if you or your spouse has access through a retirement plan through your jobs. See the IRS IRA Deduction Limits page for details.

SEE ALSO: A Good Game Plan on Roth IRAs Can Take the Bite Out of Tax Day

  • First-time home purchase (up to a lifetime maximum of $10,000);
  • Higher-education expenses at a qualified institution;
  • Unreimbursed medical expenses or health insurance premiums (if unemployed); and
  • Become disabled.

Life Insurance Cash Value

  • No income restrictions;
  • Tax-deferred cash value accrual;
  • Tax-free withdrawals (or loans);
  • Not included into Social Security taxation equation;
  • Pre-bankruptcy, lawsuit and creditor protection (subject to state laws);
  • Withdrawals prior to age 59½ are not subject to IRS penalty; and
  • Tax-free death benefit.

Municipal bonds

Sale of your home

See Also: Uncle Sam Can't Wait to Throw You A Retirement Surprise Party

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Retirement


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