At Cardinal Advisors, we talk a lot about taxes in retirement—and for good reason. If you’re in your 60s or 70s, you’ve probably worked hard, saved diligently, and now want to make the most of what you’ve built without sending more than necessary to the IRS.

In this post, we’re exploring two powerful tools that can help you generate tax-free income in retirement: the Roth IRA and cash value life insurance. Used strategically, these accounts can help lower your tax bill, protect your Social Security from unnecessary taxation, and allow you to leave a more efficient legacy to your loved ones.

What Makes Income Truly Tax-Free?

To be clear, tax-free doesn’t mean avoiding taxes altogether. It means you’ve already paid taxes before putting the money in the account—and once it’s there, if properly structured, you don’t pay taxes again on the growth, the withdrawals, or even when it’s passed on to your heirs.

That’s the major appeal of Roth IRAs and cash value life insurance: done right, both can provide income in retirement without increasing your taxable income.

Roth IRA vs. Cash Value Life Insurance: What’s the Difference?

While both accounts offer tax-free growth and withdrawals, they operate under very different rules.

Roth IRAs come with annual contribution limits and income eligibility requirements. Many people find these limits restrictive, especially if they’re looking to shift a larger portion of their traditional IRA into a Roth. That’s where Roth conversions come in—moving pre-tax money from an IRA into a Roth IRA, paying the taxes up front, and letting the money grow tax-free from there.

Cash value life insurance, on the other hand, doesn’t have those same contribution limits. While premiums need to be spread over several years (typically 7–10), there’s much more flexibility in how much you can fund into a policy. In addition to tax-free growth and withdrawals (when properly structured), life insurance policies often offer living benefits, such as access to the death benefit for long-term care needs.

Real-World Application: Building a Flexible Retirement Strategy

We often meet with retirees who tell us they don’t really plan on spending their entire IRA. Maybe they’re living comfortably on Social Security and some savings, and their IRA is essentially earmarked for their children. What they don’t always realize is that their children—often in higher tax brackets—may pay a hefty tax when they inherit that money.

By converting that IRA to a Roth slowly over time, retirees can pay taxes while they’re in a lower bracket, and leave their kids money that’s completely tax-free.

Others may prefer to keep their money growing tax-free while retaining the option to access it if needed—perhaps through a loan from a life insurance policy or Roth withdrawal. This can be especially helpful when facing unexpected costs or needing to bridge a short-term financial gap.

Managing Medicare and Social Security Taxes

One of the lesser-known benefits of tax-free income is its impact on IRMAA (Income-Related Monthly Adjustment Amount), the Medicare surcharge for higher-income retirees. Since Roth and life insurance income doesn’t count toward your MAGI (Modified Adjusted Gross Income), it can help keep Medicare costs lower.

The same logic applies to Social Security taxation. Up to 85% of your Social Security benefit can be taxable depending on your other income—but tax-free withdrawals don’t count toward those thresholds. That means more of your Social Security stays in your pocket.

Tax-Free Income + Guaranteed Income for Life?

Here’s a strategy many people overlook: combining a Roth IRA with an annuity to create a guaranteed, tax-free income stream for life. If structured properly, your Roth IRA can fund an annuity that pays you every month for the rest of your life—and those payments remain tax-free.

This gives you predictability, peace of mind, and protection from market volatility—all without the tax drag.

The Bottom Line: Use Both Tools Strategically

You don’t have to choose between a Roth IRA and cash value life insurance. In fact, the most successful retirement plans often use a mix of both, based on your goals, health, income needs, and estate planning wishes.

Think of your retirement income plan as a set of buckets—some taxable, some tax-deferred, and some tax-free. The more flexibility you have across those buckets, the more control you’ll have over your taxes in retirement.