As you save for retirement, the amount you save certainly matters—but it's also important not to overlook the strategies that could help you retire with more income, regardless of how much you contribute. By taking advantage of some tax-free retirement income options, you can save yourself some money when it's time to start taking distributions.
Keep in mind that this information on tax-free retirement income is current as of April 2025. Because tax laws are complex and constantly evolving, it's important to stay up-to-date about any changes that could affect your retirement plans.
So, what are some practical ways to bring in tax-free retirement income? Explore a few options below, along with some additional possibilities that may depend on your unique situation.
- Health Savings Account Distributions
Health savings accounts (HSAs) are a popular option because they offer numerous tax advantages. Not only are contributions to these accounts tax-deductible, but they also earn interest tax-free and can be used tax-free for qualified medical expenses.
Once you reach retirement age, you can even withdraw from your HSA without penalty—so long as you're using the funds for a qualified medical expense. In fact, the only time an HSA is subject to taxes is when the funds are used for something that's not medical-related.
- Roth Distributions
Another option to consider for tax-free retirement income is a Roth IRA or a Roth 401(k). With these types of accounts, you pay taxes before you contribute. From there, all qualified withdrawals beginning at the age of 59.5 are tax-free (provided that you've had the account open for a minimum of five years). And compared to other types of retirement accounts, a Roth 401(k) offers higher income limits, allowing those age 50 and older to contribute an additional $7,500 tax-free contribution.
- Life Insurance Payouts
Typically, payouts made to beneficiaries from a life insurance policy are also tax-free (with the exception of interest earned on the account). This same concept applies to those who decide to take out a loan on a life insurance policy, making this a good option for many individuals saving for retirement.
- Gifts/Inheritances
Under IRS code, inheritances and gifts are not considered taxable income—which means that if you receive an inheritance in retirement (whether it be property or cash), you generally will not need to pay taxes on it unless your inheritance generates additional income in some way. Keep in mind, however, that you may need to pay taxes on gifts and inheritances to your state (depending on where you live).
Other Potentially Tax-Free Income Types
In addition to these four tax-free retirement income options, there are a few other situations where you may be able to add to your retirement income without paying taxes—but it will really depend on your specific situation.
For example, in some cases, capital gains from the sale of a home are tax-free—although this benefit isn't exclusive to retirees. There are some limits on this, however; not only must you have lived in your residence for a minimum of five years before selling, but you can also only claim the home sale exclusion once every two years. Still, selling a home in retirement can be a great way to bring in additional tax-free income.
Finally, consider whether your Social Security benefits may also be tax-free. This is not usually the case, but it really boils down to your total income. For 2025, for example, individuals with a combined income of less than $25,000 per year (or $32,000 per year for married couples filing jointly) can collect tax-free Social Security benefits. For those earning more than that amount, taxes would be imposed only on the income exceeding the limit.
Ready to Maximize Your Retirement Income?
As you can see, there are quite a few ways to make the most out of your retirement income through tax-free income strategies. Whether it's funds from a health savings account, an inheritance, or anything in between—being able to avoid taxes on certain retirement income could keep more of your hard-earned money in your pocket.
If you're looking for other ways to strategize your retirement savings, there are certainly some other options to consider. The best way to develop a strategy that's tailored to your unique needs is to consult with an experienced financial advisor who has specific expertise in retirement savings. From there, you can develop a plan that will set you up to enjoy your golden years to the fullest.
If you have any questions or would like additional information, please contact our tax professionals.