Insurance Strategy: Tax-Efficient Retirement Enjoy tax-free retirement income
Even though you have saved well, you may worry about the long-term tax implications on your retirement income. Protecting your loved ones and assets is key to long-term financial stability and security. The right tax-efficient strategy using RiverSource cash value life insurance can help you control the impact of taxes on your retirement plan.
Help control the impact of taxes on retirement savings with cash value life insurance
A cash value life insurance policy offers a combination of tax advantages including:
- Greater financial security – Life insurance can help you create an amount of money often times more than the value of an initial asset that can be passed down to heirs, income-tax free.
- A flexible income source – When properly structured, you may fund and withdraw from your cash value life insurance policy without limitation related to income and age.
- Unique tax advantages – When properly structured, you can have the opportunity to access your principal and tax-deferred growth – income tax-free.
Before you purchase cash value life insurance, be sure to consider the policy’s features, benefits and fees, and whether it is appropriate for you based on your financial situation and objectives.
A tax-efficient strategy can help control the impact of taxes on retirement income
Once you’re retired is not the time to find out you have less income than you thought because of tax impacts. Understanding the tax treatment of certain retirement savings and adjusting your savings accordingly, can help you avoid significant tax impacts later.
Consider these retirement savings categories when creating a tax-efficient retirement strategy:
- Taxable – The dollars you contribute to this category have already been taxed (also known as “after tax”); you typically incur tax liability when you realize earnings on any growth (ordinary income tax on interest and certain dividends; capital gains tax, etc.). Examples of taxable income sources are savings accounts, stocks, bonds and mutual funds.
- Tax-deferred – The contributions, which may be tax deductible (funded with before-tax dollars), grow tax-deferred and are taxed at withdrawal. Generally speaking, taxable distributions are taxed as ordinary income, there may be a penalty to access prior to age 59, and for the most part, distributions from qualified accounts are required to begin at age 72. Examples of tax-deferred retirement income are a 401(k) plan and IRAs.
- Tax-free – Dollars in this category are “after-tax” and grow tax-deferred. You may withdraw from these assets tax-free provided certain conditions are met. Examples of tax-free retirement income are Roth IRAs and cash value life insurance.
It’s wise to understand the tax treatment of your retirement savings. Work with an Ameriprise advisor to devise a strategy that best suits your situation.
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