David McKnight touches upon what he considers the most overlooked tax-free income stream.

What he's referring to is to leave enough money in your traditional IRA so that your required minimum distributions can be completely offset by your standard deduction in retirement.

David believes that focusing on tax-free retirement strategies is more crucial than ever, since it's becoming increasingly clear that taxes are likely to rise dramatically in the future.

The United States is $39 trillion in debt and, as interest on that debt continues to grow and compound, the Government will eventually have to find ways to service it.

Historically, when Governments face massive debt burdens, they typically do a combination of two things: cut spending or raise taxes.

David lists what he considers the best tools for tax-free income in retirement – and why you can justify their inclusion in your balanced, comprehensive tax-free retirement plan.

The first resource is Roth IRAs, which allow your money to grow tax-free and be distributed tax-free in retirement. Plus, they provide tremendous liquidity too.

Then there are Roth 401(k)s. They have many of the same tax-free benefits as Roth IRAs, but also have an additional advantage.

Many employers provide matching Roth 401(k)s contributions in their retirement plans. Hence, you can receive free money from your employer while still building tax-free retirement income.

When it comes to Roth conversions, they're beneficial in that they allow you to convert money from tax-deferred accounts like traditional IRAs or 401(k)s into Roth accounts.

Additionally, Roth conversions don't have limits on how much money you can convert each year – as long as you're willing to pay the taxes today, you can shift large amounts of money into the tax-free bucket.

When designed correctly, cash value life insurance policies allow money to grow tax-deferred and to be accessed tax-free through policy loans.

Moreover, they also provide a death benefit that you can receive in advance of your death for the purpose of paying for long-term care.

In case you need a volatility buffer, you can use cash value life insurance to draw money from the policy after a down year on the market instead of selling stocks at depressed prices.

Leaving enough money in your traditional IRA so that your required minimum distributions can be completely offset by your standard deduction in retirement is the most overlooked tax-free income stream – David illustrates "the Holy Grail of financial planning".

HSAs, health saving accounts, are the only other financial tool that allows contributions to be tax-deductible, the growth is tax-deferred, and withdrawals can be tax-free if used for qualified medical purposes.

However, HSAs come with certain restrictions on how the money must be spent…

David notes that, in a perfect retirement plan, you may have as many as six different streams of tax-free income.

The idea behind it is to take advantage of every nook and cranny in the IRS tax code instead of relying on just one tax-free account.

Mentioned in this episode:

David's new book, available now for pre-order: The Secret Order of Millionaires

David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track

Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Mitt Romney

The Best Tax-Free Account for Retirement