Pay attention to when you’re overspending to save money. There are eight categories of tax-free retirement income.
1. Checks for stimulus
The IRS delivered Letter 6475 to some Americans, informing them of a third stimulus check due in 2021. The letter is intended to assist you or a tax professional with the preparation of your taxes. More information can be found here.
Even though these stimulus cheques are not taxable, they must be recorded on your 2021 tax return.
2. The Social Security Administration
If the Social Security Administration (SSA) determines that your total income is below a specified threshold, your Social Security benefits are not taxed.
The amount of time you have to file is determined by how you file. Monthly retirement, survivor, and disability payouts are among the perks.
Supplemental Security Income (SSI) is not included because it is not taxable.
3. Savings account for health care
Health savings account (HSA) contributions are tax-deductible. When utilized for medical costs, HSA withdrawals are also tax-free.
4. Payments on a reverse mortgage
A reverse mortgage is a form of loan that allows you to borrow money at a lower interest rate.
A homeowner can borrow against the value of their home if they are 62 or older and have “substantial home equity.” Reverse mortgage payments are not taxable, according to the IRS. Instead of income, the payment is treated as loan proceeds.
5. Distributions from Roth IRAs
Distributions from a Roth IRA account aren’t taxed if they’re qualified.
6. Proceeds from life insurance
If you are the beneficiary of a life insurance policy, the proceeds are not taxable. There is one exception, however: any interest you get is taxable and must be recorded.
7. Attempting to sell your home
Depending on the value, the profit from selling your principal residence may not be liable to federal income tax.
8. Benefits for veterans
The Veterans Administration’s disability compensation should not be included in your gross income. Other payments that qualify as disability compensation include:
- Veterans and their families receive disability compensation and pension payments for their disabilities.
- Grants for homes that are wheelchair accessible
- Vehicle grants for soldiers who have lost their sight or use of their limbs
- advantages from the government’s dependent-care support program