5 Tax Free Savings Strategies for Your Retirement

 In Retirement

tax free savings

It’s never too soon to start planning for retirement. Read that again and let it sink in. Whether you’re 45, 30, or just entering the workforce, the best time to start saving for those golden years is right now.

Of course, making the decision to save for retirement is only part of the challenge. You also need to find ways to limit your tax liabilities in the meantime.

Thankfully, it is possible to take advantage of tax-free savings methods to build your nest egg. Below, we’ll cover a few of the strategies you need to know.

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Tax-Free Savings or Taxable?

Before we get too far, we need to discuss whether you would benefit more from a taxable account or from tax-free savings. It seems like a given on initial scrutiny, but it’s not that simple, and will depend a great deal on your level of income and your future tax bracket.

You’ll find that IRAs and 401(k)s fall into the tax-deferred section, while Roth IRAs fall into the tax-free savings camp. For most investors, the best option is a mix of the two types spread across multiple accounts.

This provides diversification and greater risk tolerance, while allowing you to take advantage of the benefits offered by both taxable and tax-deferred accounts.

Consider an Internet Savings Account

Not sold on the idea of the Internet as a financial tool? That’s understandable, but you really should give it a second look, particularly when it comes to Internet savings accounts. In his article for Forbes, Ken Tumin points out, “These accounts offer interest rates that are much higher than what’s available at brick-and-mortar banks and credit unions.

Also, they have a history of raising rates more quickly after the Fed rate hikes than accounts at other financial institutions. You can typically link an Internet savings account to any checking account from another bank or credit union.

Once the link is established, the Internet bank will let you fund the savings account by electronically transferring money from your checking account.”

Simple IRAs for Tax Deferred Savings

There are plenty of investing and savings tools open to you, but one of the best, particularly for tax-deferred savings if you’re a small business owner, is the humble IRA. In her article for Forbes, Ashlea Ebeling writes, “Simple IRAs are a great option for a husband and wife working together.

With a simple IRA, you can make an employee contribution of up to $12,500 pretax, or $15,000 if you’re 50 or older. On top of that, as an employer you can also put in up to 3% of your net self-employment income.

Basically, if you make $100,000, you can put in another $3,000 as an employer match.” The second spouse gets most of those benefits, as well.

Of course, you might not be a small business owner and may have no interested in starting your own company (although it’s a great way to really build your nest egg and save for the future). Don’t worry; a simple IRA can still be highly beneficial and allow you to build tax-free savings.
retirement accounts 401K IRA

Use a Roth IRA

While a simple IRA can be beneficial, if you really want tax-free savings, you’ll want to consider a Roth IRA. As mentioned previously, these accounts fall squarely under the tax-free heading, rather than the tax-deferred heading.

All contributions to these accounts are made after being taxed, and their growth is also tax free. This also gets around the problem of having to make mandatory, taxable disbursements from simple IRAs and 401(k) accounts when you reach the required age.

Use Bonds to Your Advantage

Bonds offer a lot of benefit for anyone saving for retirement. In fact, they’re my most recommended tool. They can be added to both Roth IRA and simple IRA accounts, and they do something that other, high-risk assets don’t – they provide predictability.

The beauty of bonds is that you know exactly how much you’ll earn and when. While playing the stock market provides you with potentially higher returns, there’s also the very real possibility that you’ll lose your shirt.

That risk isn’t there with bonds. In addition, creating a bond ladder within your retirement accounts allows you to create a long-term investment strategy that will deliver returns on a regular basis for the duration.

Use a Transition Strategy

Converting from a simple IRA to a Roth IRA allows you to protect some of your retirement funds from taxes. However, it needs to be done in the right way.

When you convert from one to the other, you’ll be taxed on the amount transferring between the two accounts. That will be set at the tax rate for the year in which the funds were transferred.

Obviously, tax rates change periodically, so it makes sense to watch for the best time to convert from one account to the other in order to reduce your tax liability and ensure that you maximize your contribution to the Roth IRA.

Bonus Tip:

As a bonus tip, remember that you need to be careful with your money even after you retire. If you retire and then start pulling large sums from your retirement accounts, it could have a negative impact, particularly if you’re on Social Security (your disbursements may be enough to cut down your Social Security payments). There’s also the potential that those withdrawals will push you into a higher tax bracket, leaving you with greater liability.


When everything’s said and done, there are plenty of options for tax-free savings available to you. However, it’s crucial that you create a savings and investment plan that is tailored not just to your goals, but also to your risk tolerance, your income, and your projected tax bracket at retirement.
early retirement

Sergey Sanko
Sergey had started an IncomeClub after years of being an investment advisor for high affluent investors and managing fixed income securities. He is the lead investment advisor representative and holds a Series 65 license. Sergey earned his Executive MBA degree from Antwerp Management School.
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