Tax Free Retirement Planning

Tax Free Retirement Planning

A comprehensive retirement plan has multiple income streams. There are several ways to generate tax-free income in retirement. However, this requires some dedicated planning.

Pre-Tax Plans

Pre-tax retirement plans, such as 401(k)s and traditional IRAs are generally referred to as tax-deferred plans. They allow you to take an upfront tax-savings by allowing you to contribute on a pre-tax basis and delay taxes due on those contributions and any gains until later. 

If you are like most people that have diligently saved for retirement, you may have accumulated a decent amount of savings in pre-tax retirement plans like 401(k)s and IRAs. While these vehicles can subject you to significant taxation, there is hope.

How can you convert or shift pre-tax assets to tax-free vehicles or strategies? What tax-free strategies are right for you?

Roth IRA

A Roth IRA account is an account that is funded with after-tax money but offers tax-free growth. While there are income limits that might “phase out” your ability to contribute to a Roth IRA, anyone can convert an IRA to a Roth IRA. These income phase outs do not apply to a Roth 401(k), however. 

In 1997, the Roth IRA was signed into law after being modeled after similar tax provisions that govern the Life Insurance Retirement Plans (LIRP) discussed below. 

A few small consideration for a Roth IRA:

• You must be 59 ½ years old and have had a Roth for 5+ years to use the gains tax-free. Withdrawals prior to 59 ½ (or prior to having a Roth for 5 years) will usually cause taxes and penalties on your gains.
• Your contributions however are free of tax or penalty to you at any time. 
• Contribution limits are small: $7,000 per year for those under age 50; $8,000 per year for those 50+ (2025). However, you and your spouse may each have one.
• Qualified Distributions do not trigger taxes on social security benefits
• No limit on Roth conversions from 401(k)s/IRAs *Keep in mind that Roth conversions involve paying taxes upfront on the converted amount. The decision to convert should take into consideration your current and expected future tax rates.
• Earned income is required in order to contribute. 

 

*Mason Wealth Group, Martina Mason, and Gradient Advisors, LLC do not provide tax and/or legal advice, but will work with your attorney or independent tax or legal advisor. In the event that you do not have your own attorney or tax professional we will partner with local CPA firms to provide tax services.