The Top 5 Tax-Free Retirement Strategies

Baby Boomers are nearing retirement age. But, unlike their predecessors, Boomers are nervous, but can you blame them with all the questions they have to ask themselves each day?
What is the future of Social Security?
Do I have a nest egg large enough to bridge the earnings gap?
Will I ever be able to retire?
Financial experts are combing the globe for tax-free funding options. We looked at the market and found the top 5 options.
1. Indexed Universal Life
These are currently the hottest selling policies out there. The insurance pays interest into a policyholder’s account. How much interest paid is wedded to the average annual yield of a benchmark market index. The most common index used is the S&P 500. The policy caps the contribution at a certain percentage. An additional draw is that these policies are “bear market protected” by in-policy guarantees. One note of caution, however. The State of New York is probing the sales of indexed universal life policies, in an effort to discover if exorbitant claims of profitability are in play by the sales force.

2. Whole Life Insurance
This is the policy that generations of people meant when they said they had life insurance. Before there was Universal Life and Term Life, there was Whole Life. The policyholder makes the premium payment, thus remaining “participatory.” You are allowed to borrow against the accumulated cash value tax-free, but this will reduce the amount of the death benefit. However, the funds that have accumulated need to be at a significant amount to warrant borrowing from the fund. The premium dollars you pay will pretty much stay the same over the life of this unique policy.

3. Living Benefits Rider
This special policy allows you to add money to your insurance policy tax-free. These funds can be used as a buffer in the case you develop a serious illness. You will need to explore what the variety of acceptable diagnosis are, but you can generally pull anywhere from 45 to 90% of the face value, depending on the condition and amount of insurance you have.

4. Roth IRA
This individual retirement arrangement was conceived by Senator Bob Packwood (R-OR) as a way to allow retirees to have tax-free investment income at retirement age. Congress modified the Roth, taxing the fund but not until the distribution after retirement. It remains a popular option today.

5. Municipal Bonds
Though the name indicates these bonds are sold only by municipalities, this is hardly the case. Cities, counties, water boards and school districts commonly offer municipal bonds, which are exempt from state tax. Bonds are much more dynamic in terms of retirement investments, than are the other options on our list. Bonds can be bought, sold, traded and otherwise moved about several times a week.
The option best for you is likely on this list. We will stay abreast of the market as conditions in the financial market change.

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