Insulating Your Money Against the #1 Cost in Retirement: Taxes

“Sanctuary, sanctuary,” cried Quasimodo, the hunchback of Notre Dame as he ran into the church with the convicted woman Esmeralda to escape the lynch mop who had tried her and found her guilty. Back in the day the sanctity of the church was a safe harbor for those fleeing the law.  Today many of America’s affluent, upper middle class and even seniors in retirement are fleeing taxes. What tax shelters remain can help you keep more of your money. Here are the most popular for retirement.

Health Savings Accounts: Contributing to a qualified health savings account is tax deductible, accumulates tax deferred and is distributed tax-free for medical expenses and medical insurance premiums for coverage like disability, health, Medicare and long-term care. The annual contribution limits for 2017 are $3,400 for individuals, $6,750 for married couples and $7,750 for married couples over age 55. There is also a once in a lifetime transfer from an IRA or Roth IRA to an HSA tax free up to $7,750 for married couples over age 55 in a non-contribution year.

Roth IRAs: These accumulate tax deferred with tax-free distributions after age 59½. Under the five-year rule you could access part of your Roth IRA before 59½ without a penalty with some restrictions.

Reverse Mortgages: Taking tax-free income either by payments or lump sum from the equity of your home through the Home Equity Conversion Mortgage program under HUD and insured by the FHA.

Cash Value Life Insurance: Taking a collateralized policy loan from a cash value life insurance, non-modified endowment contract can generate tax free income provided the policy remains in force during the life of the policy insured. There are four cash value policies to choose from based on your risk tolerance and personal suitability.

All four of these forms of tax-free income are not includable in the provisional income test for Social Security benefit taxation. Seek out a tax consultant before moving forward with any of these tax advantaged product lines.

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