Do you know all the ways to collect tax-free income? Surprisingly enough, there are still more than a few ways to do it. Here’s a summary of what we think are the best federal-income-tax-free opportunities for individual taxpayers.

Break 1: Tax-Free Income Accumulation and Withdrawals with Roth IRAs

Roth IRAs have two big tax advantages.

Advantage 1. Tax-Free Withdrawals

Unlike withdrawals from traditional IRAs, qualified Roth IRA withdrawals are federal-income-tax-free and usually state-income-tax-free too. What’s a qualified withdrawal? It’s one that’s taken after you’ve met both of the following requirements:

You’ve had at least one Roth IRA open for over five years.

You have reached age 59 1/2, are disabled, or are deceased.

After your death, your heirs can take federal-income-tax-free qualified Roth IRA withdrawals, with proper planning.1

Advantage 2. Exemption from Required Minimum Distribution (RMD) Rules

Unlike with a traditional IRA, you (as the original owner of a Roth account) are not burdened with the traditional IRA owner's obligation to start taking RMDs after reaching age 72. Traditional IRA owners face a stiff 50 percent penalty that does not apply to Roth IRA owners.

Therefore, you can leave a Roth account untouched for as long as you live.2

This important privilege, along with the aforementioned tax-free withdrawal privilege for heirs, makes the Roth IRA a great asset to set up, maintain, and eventually leave to your heirs—to the extent you don’t need the Roth IRA money to help cover your own retirement-age living expenses.

The trick is getting money into a Roth IRA. There are two ways to do that.

Method 1. Make Annual Roth Contributions

Making annual Roth IRA contributions makes the most sense if you believe you ... Log in to view full article.