Upticks: Powerful Tax-Free Retirement Tools

By Luke Sullivan on May 15, 2025

Think tax-free retirement sounds too good to be true? Think again. Jake and Cory break down the most powerful tools that could help you keep more of your money—legally and strategically. From the mysterious-sounding Mega Backdoor Roth to the triple-tax-advantaged HSA, they’re covering the heavy hitters. Ever heard of tax-free municipal bonds? What about using life insurance to offset taxes for your heirs? And yes, they even talk about donor-advised funds (don’t worry, it’s more interesting than it sounds). If you’re planning for retirement—or just looking to learn more about your money—this one’s for you.

Click here to subscribe to our newsletter!

Click here to contact us!

Click here to order ‘Retiring Right’!

Read an overview of the conversation below:

401(k) In-Plan Roth Conversion

This strategy allows individuals to contribute after-tax dollars to their 401(k) and then convert those funds into a Roth IRA, all while still employed. As Cory explains, “We have seen, Jake, and I have seen working with clients, more people that have the option to actually do the mega backdoor Roth inside of their 401(k) plan.” The advantage lies in the ability to contribute significantly more than the standard Roth IRA limits, allowing for potentially greater tax-free growth over time. Jake emphasizes the importance of checking with your HR department to see if your plan allows it, noting, “You simply call your HR or your 401(k) provider and say, ‘Hey, do I have a mega backdoor Roth feature in these 401(k) accounts?’” While not every plan offers this feature, for those who do, it can be an important factor in long-term tax planning.

Health Savings Accounts (HSA)

Jake describes an HSA as “arguably the most tax advantageous account out there.” HSAs offer a triple tax benefit: contributions are tax-deductible, the funds grow tax-deferred, and withdrawals for qualified medical expenses are tax-free. Cory adds, “I’ve yet to run across somebody that just had too much money saved for healthcare,” highlighting the practical value of HSAs in retirement. However, eligibility is limited to those enrolled in high-deductible health plans, and Jake cautions that HSAs are not ideal for legacy planning: “This is not something you typically want to leave your heirs either because there’s different tax laws that apply.” Instead, the goal should be to use the funds for your own medical expenses during retirement, helping maximize the tax benefits while minimizing future complications.

Tax-Exempt Municipal Bonds

An avenue for generating tax-free income, particularly for those in higher tax brackets, these bonds are issued by local governments to fund public projects and pay interest that is often exempt from federal—and sometimes state—taxes. Cory explains, “There’s a way that you can buy municipal bonds that pay interest that is exempt from federal or from state tax.” The key to evaluating their value lies in calculating the tax-equivalent yield, which Jake illustrates: “If a municipal bond is only paying 3%, your tax equivalent yield… could be like getting 5% in a taxable bond.” While municipal bonds carry some risk, especially those tied to less stable projects like casinos or stadiums, they can be a smart addition to a taxable investment portfolio. Jake notes that these are not for retirement accounts but rather for brokerage or trust accounts, where tax efficiency is important.

Roth IRA

Introduced in the late 1990s, Roth IRAs allow for tax-free growth and withdrawals, provided certain conditions are met. Contributions are made with after-tax dollars, and there are income limits for eligibility. However, those who exceed the limits can still take advantage through Roth conversions. Jake points out, “You can move money from an IRA into a Roth IRA and that’s called a Roth IRA conversion.” These conversions can be valuable because Roth IRAs do not have required minimum distributions (RMDs), and inherited Roths are also tax-free for beneficiaries. Cory emphasizes the long-term benefits: “That could be a bucket of money that could be much larger 10 or 20 years from now that’s available tax-free.” The team at Falcon Wealth Advisors uses tax planning software to determine optimal conversion amounts annually, helping clients stay within favorable tax brackets while maximizing future tax-free income.

Life Insurance and Charitable Accounts

Life insurance can be used strategically to offset taxes on inherited IRAs. Jake gives an example: “You’ve got a million dollars in a pre-tax IRA… your kids are potentially going to have to empty that account in 10 years and pay all the taxes on that.” By purchasing a life insurance policy with a death benefit, heirs can receive tax-free funds to cover those taxes. However, Jake warns, “Life insurance is not cheap and it’s not free… we don’t like to lead with life insurance.” Donor-advised funds, on the other hand, are ideal for charitably inclined individuals looking to reduce taxable income in high-earning years. Contributions can include appreciated stock, and while the donation is irrevocable, the donor retains control over when and how the funds are distributed to charities. Jake explains, “You get to lower your taxable income in a specific year, invest the money, let it grow… and that would come out tax-free.” These tools, while not for everyone, can be highly effective when used in the right context and with proper planning.

As Jake and Cory allude to throughout the episode, it’s important to remember tax diversification. No single strategy fits all, and the future of tax laws remains uncertain. But by combining tools like Roth IRAs, HSAs, municipal bonds, and donor-advised funds, individuals can build a more flexible, resilient retirement plan. As Jake puts it, “We plan because we can’t predict.” That mindset—paired with proactive, personalized planning—can make all the difference in achieving a more tax-efficient retirement.

Thank you for tuning in, we hope you have a great week!

Hightower Advisors, LLC is an SEC registered investment adviser. Registration as an investment advisor does not imply a certain level of skill or training. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.