Both IRAs and 401(k) plans offer the option of a Roth account, where contributions are taxed, but withdrawals after reaching age 59 and a half are tax-exempt. If the income exceeds the limits (single: $144,000, joint filing: $214,000), it becomes ineligible for Roth account contributions. However, it is possible to convert a traditional account to a Roth account at any time, which is treated as a withdrawal and subject to taxation. It is advisable to transfer funds into a Roth account early on, rather than during a high-income period, to avoid increased tax liability.

Many individuals receive an inheritance at some stage in their lives, which can be invested in retirement savings without incurring taxes. Even in cases involving estate taxes, the beneficiaries are not responsible for payment.

Municipal bonds are issued by state, city, and local governments to fund public projects such as schools and roads. They enjoy federal tax exemptions, meaning investors who hold municipal bonds do not pay federal taxes on the interest earned. In most cases, holding bonds from the home state also exempts them from state taxes. Not only are they tax-exempt, but they also provide stable returns.

Health Savings Accounts combine the advantages of traditional and Roth IRA accounts. Contributions and investment earnings are both tax-free. Withdrawals are also tax-free as long as they are used for qualified medical expenses. Otherwise, a 20% penalty is imposed. However, once reaching the age of 65, individuals can freely withdraw funds without incurring penalties.

Social Security income is not subject to federal taxes, but some states may impose state taxes. However, if there is additional income that exceeds a certain threshold, a portion or all of the Social Security income may be taxable. For the tax year 2022, if an individual’s combined income is between $25,000 and $34,000, or if filing jointly, the income is between $32,000 and $44,000, a portion of the Social Security income may be subject to taxation, possibly up to 50%. If an individual’s income exceeds $34,000 or the joint filer’s income is even higher, the taxable portion can increase up to 85%.

According to the definition by the Social Security Administration, “combined income” is the adjusted total income plus non-taxable interest, plus half of the Social Security income.

Life insurance is not only essential for family protection but also provides the option to withdraw cash value from the policy as supplemental retirement income, while enjoying tax advantages.