Tax Planning Concepts Part 2

Blaine Bowers |

A couple of days ago, you saw my post about a basic tax planning concept.  If not, you can click here to find it. 

As promised, I wanted to share another basic tax planning concept with you today. 

Tax-free income

In providing planning for my clients I am often asked about a variety of strategies. 

Tax-free income is perhaps one of the top subjects and can be considered when planning for many different types of goals.  When planning out your financial goals, and considering future income and the necessary strategies to get there, there are a number of ways to go about this.

Interest income from municipal bonds can generally be received free of federal income tax.  Qualified distributions from Roth IRAs, Roth 401(K)s, Health Savings Accounts (HSAs), Coverdell Education Savings Accounts (ESA's), and 529 Plans can also be received free of federal income tax. 

In some cases, such as with a Roth IRA, tax deferral may be combined with tax-free income. 

For example:  You make a nondeductible contribution of $5,000 to a Roth IRA.  If you earn a 5% annual rate of return for 20 years, the $5,000 will grow to $13,266, with no federal income tax on qualified distributions. 

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Neither The Strategic Financial Alliance, Inc. nor its representatives or employees provide legal or tax advice. If legal or tax advice or other expert assistance is required, the service of a currently practicing professional should be sought.