Having a source of tax-free retirement income can help you minimize your state and federal income taxes.
Most people think retirement will be less complicated than working life, but there's one aspect of being a retiree that's likely to be more complicated: your income taxes. When you're working, your employer will typically withhold enough from your paychecks to cover your tax bill. But once you retire, you'll be responsible for figuring out how much you owe and paying it to the IRS and your state revenue department.
The good news is that not all sources of retirement income are taxable. One of the best potential sources of nontaxable income is a Roth retirement account. With a Roth account, you can't deduct your contributions while you're working, but once you retire and start taking money out of the account, you don't have to pay taxes on those distributions. In essence, a Roth account is the opposite of a traditional IRA, which allows you to deduct your contributions from your taxable income but does not allow tax-free withdrawals. And Roth accounts can save you money on other taxes as well if you plan your distributions carefully.
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