Retirement Planning

Tax-Free Income

Many of our clients hate paying taxes in retirement. While taxes are part of the deal regarding IRAs, 401(K) and other similar qualified retirement plans, they don’t have to be when dealing with non-IRA assets.

There are several ways to generate tax-free income in retirement and the sooner you start planning for tax-free income the more potential choices you’ll have in retirement. Tax diversification is an important part of our retirement income planning. One of our planning techniques leading up to retirement is to create multiple buckets of assets that all have different tax characteristics.

This creates more flexibility and choice once in retirement. We cannot control what tax rates are or what they will be, so the Oak Harvest philosophy is: prepare and have the ability to pivot.

This means that if taxes are higher in the future, we will have already prepared by having several different options at our disposal for tax-free income.

If taxes are lower in the future, we can accelerate distributions from our tax-infested IRAs and 401(K) plans.

The strategies are different depending on your age, but the big takeaway is to have tax diversification as part of your investment and retirement plan to create choices when it comes to income. This allows you to pivot when the economic or political winds change direction.


Municipal Bonds

Municipal bond, one of the tools available for use in an overall tax and income strategy, pay interest that is tax-free at the federal level and can be one way of supplementing your retirement income.

All Municipal Bonds are issued by a municipality such as a city, state or the federal government. They have a time frame, pay an interest rate and promise to pay you back the money you loan them once the time frame is over.

Municipal Bonds are offered for sale initially at the price of $1,000 per bond. They have a stated interest rate they pay each year and a time frame that states how long they will borrow your money for before the bond will repay the money you initially lent.

During the stated time frame (known as “maturity”), the bond will trade publicly, and the price may go up or down. Each year, regardless of the price movement, you will receive your promised interest payment, so long as the government issuing the bond is financially solvent.

When the bond matures, you will receive your money back as promised as long as the government issuing the bond is financially solvent.

There are two general types of municipal bonds:

  1. Revenue Bonds
  2. General Obligation Bonds

A revenue bond is typically backed by something in the city or state that generates revenue such as a toll booth or a stadium. The bonds are issued to raise money to build the structure and as the completed structure makes money the bondholders are paid their interest and principal upon maturity. The city is then left with the existing structure to make ongoing revenue to pay for governmental operations.

General obligation bonds have the same structure (cost, maturity and interest), but are backed by the general financial ability of the city, state, or Federal government.


Roth IRA

Roth IRAs are another way to help generate tax-free income in retirement. By completing a Roth conversion, clients can take advantage of favorable tax rates when it makes sense to do so. We complete Roth conversions for clients in lump sums and or incrementally over a period of years. When meeting with your advisor, if this is important to you it will be part of your Path and something we will analyze and help you with over time.



IUL can be a tax-free retirement income strategy if you start it at a young enough age. For these policies to be used for tax-free income, we encourage clients to start them before they are 60 years old.

When you’re young and simply need life insurance to cover your family against an unforeseen tragedy, we believe term insurance is usually the best option.

As you get further along in your career and have extra income to spare or savings accumulated, IUL can be a safe way to get your money to grow and plan for tax-free income down the road.

As you make annual premium payments, your cash value builds up and it earns interest by indexing to an external index like the S&P 500. Your premium payments and all interest earned are guaranteed* against market loss and you get to participate in the upside of the market over time. The gains that you make are locked-in on an annual basis, similar to Fixed Indexed Annuities.

As the gains build over time and you need money for starting your own business, paying college expenses or as a retirement income stream, you have a few choices regarding how you can receive income.

If the policy was structured correctly, according to the IRS code, you may be eligible to take tax-free policy loans over time. These may be at a 0% loan rate, but you also have the choice of taking a participating loan which charges an interest rate. In that case, the money you receive can still earn interest that is credited to the base value of the policy’s cash value.

One of the advantages of IUL is that it will always have a death benefit that is greater than your cash value. All the money inside of it is protected from creditors and lawsuits, and you have access to what are known as “living benefits” in addition to tax-free policy loans. One such living benefit is having access to the death benefit before you pass away. This feature is known as an “accelerated death benefit” and is normally reserved for medical emergencies such as a critical illness or a long term care situation.

IUL can be a valuable part of a financial plan if used appropriately and in conjunction with a well- diversified portfolio and Customized Retirement Plan.

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