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  • Triple tax free

    What investments are truly tax free such as triple tax free the ones that come to mind are HSA accounts munipal bonds although funded with post tax money, life insurance proceeds, Roth IRA again post tax money. Is there anything that I am missing? I am not sure about 529b if that grows tax free or money you put in a child account below the 0% percent tax bracket and of course capital gains income at or near the zero percent tax bracket especially if you get RMD from a Roth which I assume does not count towards your tax bracket. Is there anything I am missing?

  • #2
    HSAs are FICA/income tax exempt on contribution and both contributions and earnings are tax free on qualified distributions. They are not exempt on contribution or distribution from state income taxes in CA and NJ.

    The other items you have mentioned are not triple tax free, they are funded after-tax and only single tax free and in some cases subject to state and/or federal taxes.
    • Roth contributions are after-tax and tax free on distribution. Qualified distributions are also tax free on earnings.
    • Municipal bonds are purchased with after-tax money and are federal income tax free, but are subject to capital gains taxes. Certain types must offset any capital losses with dividend income from the prior six months. Unless from your local or state jurisdiction, they can be subject to state income taxation.
    • Life insurance is funded with after-tax money. Only death benefits are tax free. Any earnings of whole life and similar products are subject to ordinary income taxes.
    • 529 accounts are funded with federal after-tax money. Some states provide a deduction for 529 contributions. All distributions are pro rata principal (contributions) and earnings. Principal is always tax free. Earnings are only tax free on qualified distributions.

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    • #3
      the only triple tax-free account is HSA. Triple tax free means no taxes taken out when you contribute (so that eliminates a Roth and a 529 and brokerage since you already paid the tax), no taxes taken out on growth (so that eliminates a brokerage account, unless in the 0% gains bracket), and no taxes taken out when you distribute (so that eliminates a 403b/401k/IRA).

      There is no 0% bracket when it comes to a 529. You must put post-tax money in a 529. The money grows tax free and can be distributed if used for qualified expenses only.

      Roth IRAs have no RMDs but Roth 401k/403b do. So you want to rollover your Roth 401k/403b money into a Roth IRA before it's RMD time for the Roth 401k/403b. If you don't you'll be forced to take it out of roth space but yes you won't pay tax.

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      • #4
        Anything else that will grow tax free with posttax dollars that was not mentioned here the only thing I can think of is a foreign bond or stock where the tax is automatically taken out for you

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        • #5
          Originally posted by JBME View Post

          There is no 0% bracket when it comes to a 529. You must put post-tax money in a 529. The money grows tax free and can be distributed if used for qualified expenses only.
          Don’t forget state bene’s (credits and deductions).
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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