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5 Tax-Free Growth Opportunities

Updated: Mar 3, 2022

Strategies to use today for a more secure tomorrow.


  • Consider Roth 401(k) or 403(b) contributions.

  • Learn if your 401(k) or 403(b) offers after-tax contributions.

  • Are you eligible for the mighty HSA?

  • Extra cash to invest? Consider a Roth IRA.

  • Over the income limits? A back-door Roth IRA might be an option.


Taxes. One of the few guarantees of life.

When it comes to retirement savings, the accounts you use are just as important – if not more important – as how much you’re saving and investing. There are essentially three different “tax buckets” that you can use to prepare for retirement:

  • Taxable: Only gains are taxed as ordinary income or preferred long-term capital gains

  • Pre-tax: Every dollar withdrawn is taxed as ordinary income

  • Tax-free: Taxes were paid upon contribution and not subject to additional taxes

We have no idea what tax laws will be in the future, so we need a plan that accounts for the unknown.

At the very least, we want to diversify our savings across all three tax buckets to mitigate future tax rate risks. At best, we want all of our savings in tax-free vehicles.

Here are five different ways that you can build tax-free savings into your plan.

Roth 401(k) or 403(b) Contributions

Your contribution strategy is your tax strategy, and many people lack a plan.

In 2022, the IRS limits Pre-Tax and/or Roth contributions to $20,500 or $27,000 if the participant will be 50 or older at any time in 2022.

When making Roth contributions, you’re electing to pay taxes now in exchange for tax-free growth.

There are two common mistakes that we see:

  1. Focusing only on paying less taxes in the current year

  2. Only comparing current vs. future expected tax rates

You have to think big picture here. There are many cases where paying 37% in taxes now is better than paying 10% in taxes in the future based on the projected future balance.

IMPORTANT NOTE: Unlike IRAs, income limitations do not apply to 401(k) and 403(b) Plans.

Mega Back-Door Roth 401(k) or 403(b)

If available in your plan, then it’s a game-changer.

This strategy is for the high earners who are maxing out the IRS limits mentioned above and have the ability to save more.

While the IRS limits Pre-Tax and/or Roth contributions to $20,500 or $27,000, the annual contribution limit to a defined retirement plan is $61,000 or $67,500.

So, let’s say that you contribute $20,500 and your employer contributes $10,000 on your behalf. That’s a total of $30,500, leaving another $30,500 until we reach the annual contribution limit.

You can fill that void and benefit from tax-free growth if your plan offers:

  1. After-tax contributions (different from Roth), and

  2. In-Plan Roth conversions or In-Service Withdrawals

You will not receive an income tax deduction for an after-tax contribution, but the growth will be tax-free if you convert the after-tax contribution to Roth. That’s where the In-Plan conversion or In-Service withdrawals come into play. Without either of these, you can’t convert the balance to Roth, which means that any growth will be subject to ordinary income taxes instead of being tax-free.

Health Savings Account (HSA)

An HSA is arguably the most powerful savings vehicle in existence. It’s the only account where you have the potential to NEVER pay taxes.

  • Contributions are tax-deductible

  • Investment growth is tax-deferred

  • Distributions are tax-free, if used for medical expenses

If you’re in a high deductible health plan that is HSA eligible, then we highly recommend contributing and investing the balance. In 2022, single filers can contribute $3,650 and married filers can contribute $7,300. If you are 55 or older, then you can make a catch-up contribution of $1,000 over the limit that applies to you.

Worried about long-term care expenses? If you start early enough and maintain the right strategy, then this can be a long-term care slush fund and help you reduce or avoid long-term care insurance.

Not sure that you’ll need it for medical expenses? The 10% penalty for non-medical expenses goes away at age 65, so an HSA essentially acts like a regular IRA where only income taxes are paid on distributions.

Roth IRA Contributions

Have extra cash that you’d like to invest? You’ve already paid taxes, so you should prioritize tax-free growth opportunities. A Roth IRA would do just that.

The IRS limits Traditional and/or Roth IRA contributions to $6,000 or $7,000 if the account owner will be 50 or older at any time in 2022. A disciplined contribution and investment strategy over time can provide you with a sizeable tax-free balance to supplement your 401(k) and/or 403(b) balances.

Roth IRAs can also offer some flexibility. While the real power in a Roth IRA is letting it grow as much as possible for as long as possible, you can withdraw your basis (the amount you’ve contributed) tax and penalty-free at any time.

IMPORTANT NOTE: Unlike 401(k) and 403(b) Plans, the IRS determines your eligibility for direct Roth IRA contributions with income limitations starting at $129,000 for single filers and $204,000 for joint filers.

Back-Door Roth IRA

Want to make a Roth IRA contribution but earn more than the income limits? There might still be a way.

There are no income limitations on making a non-deductible Traditional IRA contribution, and there are no income limitations on converting a Traditional IRA to a Roth IRA. This creates a way to make annual indirect (back-door) contributions to a Roth IRA.

IMPORTANT NOTE: This strategy only applies if you do not have an existing Traditional or Rollover IRA balance. If you do, this strategy will trigger the Pro-Rata Rule and result in additional, unintended tax consequences.


It’s not what you make, it’s what you keep. A big part of that is managing your tax exposure.

There aren’t many places where you can grow your money tax-free, so take some time to learn if and how any of these opportunities fit into your financial plan.

The more tax-free dollars you are able to accumulate, the more certainty you have in knowing how much of your savings is yours not and subject to taxes.

Frank Iozzo, CPWA®

President, Private Wealth Advisor



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