What Types of Retirement Income Are Not Taxable?

What types of retirement income are not taxable?

Before we go any further, let me say this.

If you’re asking a tax question, you need to talk to a CPA or tax lawyer.

Not me. Not your advisor. Not the internet.

CPA or tax lawyer. Period.

Now, let’s talk about it.

There are a few types of income that can be tax free.

But not many.

And if your entire goal is trying to avoid taxes in retirement, you’re probably heading down the wrong path.

Key Takeaways

• Very few retirement income sources are truly tax free
• Roth IRA income can be tax free under current law
• Municipal bond interest can be tax free
• Tax rules can change over time
• Trying to avoid taxes completely can lead to poor decisions
• The focus should be building your income floor, not avoiding taxes

Roth IRA Income

The most common example of tax free income is a Roth IRA.

You already paid the taxes upfront.

So under current rules, the income coming out is tax free.

For example, you could purchase an Immediate Annuity inside a Roth IRA, and that income stream would be tax free based on today’s rules.

Now, I’ll say this.

I think Roth IRAs could eventually face changes, similar to what happened with Social Security.

I hope not.

But rules change.

Municipal Bonds

Another example is tax free municipal bonds.

Not bond funds.

Actual bonds.

AAA insured municipal bonds can generate tax free coupon payments.

That’s something I used when I was at Morgan Stanley and UBS.

There Are Not Many Options

That’s really it.

There are not a lot of true tax free income sources.

And that’s why I don’t want you chasing that.

Because when you start chasing tax free income, you can end up in gray areas.

And the IRS does not deal in gray.

They deal in black and white.

Stop Trying to Beat the IRS

A lot of people asking this question are trying to figure out how to beat the system.

You can’t.

You cannot beat the IRS.

Stop trying.

Do the best you can.

Work with your CPA.

But don’t let taxes control your life.

Focus on Your Income Floor Instead

Instead of asking what income is tax free, ask this:

What is my income floor?

What money is coming in every month regardless of what happens in the world?

• Social Security
• Pension income
• Required Minimum Distributions
• Dividend income
• Rental income

Add it all up.

Does that cover your lifestyle?

If it does, you’re done.

If it doesn’t, there’s a gap.

And that gap needs to be solved.

At that point, the real question becomes:

What would it take to create guaranteed income to fill that gap?

That’s something you can actually model and see in real numbers using the annuity calculators here: https://www.stantheannuityman.com/ annuity-calculator/

Don’t Let Taxes Control Your Retirement

I don’t want the IRS living in your head for free.

I don’t want you sitting there with spreadsheets trying to thread the needle.

That’s not retirement.

You worked too hard to get there.

Go live your life.

Travel.

Spend money.

Enjoy it.

Where Annuities Fit

Annuities are not tax strategies.

They are income strategies.

They solve for:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

They are used to create certainty.

Not to avoid taxes.

The Bottom Line

There are a few types of retirement income that can be tax free.

Roth IRAs.

Municipal bonds.

That’s about it.

But the better approach is not trying to avoid taxes.

The better approach is making sure your income is strong enough that taxes don’t matter.

If you’ve never actually mapped out your income floor or what a guaranteed income stream could look like, that’s the first step.

You can run those numbers and compare options here: https://www.stantheannuityman.com/ annuity-calculator/