You may want to consider tax-free strategies, which can be an important component of your overall retirement portfolio.
A Roth IRA can provide a way to grow tax-free retirement income. In order for a distribution of earnings from a Roth IRA to be a tax-free distribution, it may not occur until five years from the first contribution to a Roth IRA and you are at least 59½ or you are disabled, you meet the requirements for the purchase of a first home (up to a $10,000 maximum lifetime limit), or die. Unlike Traditional IRAs, Roth IRAs are funded with after-tax contributions.
Your eligibility to open a new Roth IRA or contribute to an existing account will depend on your current-year income and tax filing status. Talk to your financial and tax professionals to see if you are eligible.
Here are two ways that you can earn tax-exempt interest from bonds1:
- Treasury Securities: Interest from these securities is exempt from state and local income tax (but not exempt from federal tax). In addition, Treasury securities are backed by the full faith and credit of the U.S. government.
- Municipal bonds: Municipal bonds are bonds issued by states, cities, counties and other local government entities. They are generally exempt from federal income tax, as well as tax of the issuing state or locality provided you live in the state in which the bond was issued. The gain on the sale of a municipal bond may be subject to capital gains tax. Both interest and gains may be subject to alternative minimum tax. Municipal bonds are not backed by the U.S. Government; they are backed by the full faith and credit of the issuer.
In addition to investing in individual tax-exempt bonds, you can also invest in mutual funds that invest in these types of securities.2
While life insurance benefits are traditionally paid at death, some life insurance products may provide you with access to a portion of the cash value that you can use for retirement income, provided certain conditions are met. Such withdrawals may be federal income-tax-free up to your basis in the policy under current federal income tax laws. Please see your financial professional for more information. Guarantees are backed by the claims-paying ability of the issuing insurance company.