Tax Free Retirement Income Sources

There are basically four tax-free income sources to consider for any retirement plan: HSA Account, Roth IRA, Reverse Mortgage and Cash Value Life Insurance.

HSA Accounts are health savings accounts for qualified medical expenses and some premiums like Medicare and Long Term Care. The contributions into a HSA Account are tax deductible, any earnings are tax deferred and tax free distributions, again, for qualified medical expenses. There’s also an additional opportunity to transfer a one-time amount from your IRA to your HSA account tax-free.

Roth IRA withdrawals are tax free with a few provisos. There’s no tax deduction for contributions, but earnings in the policy accumulate tax deferred. Roth IRAs can be an option for mutual funds, ETFs and annuities.

Cash Value Life Insurance can distribute tax-free policy loans from a TAMRA compliant contract that is kept in force for the life of the policy insured. The basis in the policy can be withdrawn tax free at no cost to the policy owner. There’s no tax deduction for contributions, but earnings in the policy accumulate tax deferred.

Reverse Mortgage generates tax-free equity loans from your home as long as you are at least age 62, the home is your primary residence and you remain in the home for the life of the reverse mortgage. (There are maintenance requirements as well.) There’s no interest deduction from a tax point of view.

The tax-free income from these sources is not included in the provisional income test from taxation of Social Security benefits. It is conceivable that tax deductions and exemptions could offset Social Security income for some retirees. Add to that the tax-free income sources described above and (under current law) you could design a tax-free retirement.