Top 5 Tax-Advantaged Investment Vehicles

When it comes to investing your money, you’re going to want to avoid as many fees as possible when it comes time to use the money. For instance, if you’ve got money sitting in a retirement account, you don’t want any of your money taxed when you need to take it out of your 401K. No one likes fees or taxes, but unfortunately, they’re a fact of life. However, a savvy investor knows that the best places to park your money are tax-advantaged accounts because you won’t generally pay tax on the money when you withdraw it. Here are a few tax-advantaged investment vehicles you may want to consider.


  1. Roth IRAs.

A Roth IRA allows you to invest $5,000 per year if your income is under a certain limit. If you’re married, both you and your partner can contribute a maximum of $10,000. The difference with Roth IRAs is that the money you contribute is taxed before you put it in, which is better than a tax later account, such as a 401K because you’re paying taxes on less money now rather than more money later. As you know, the more you make, the more they take.

  1. Life Insurance.

Life insurance can be a valuable asset to have not only for the obvious benefits–protecting your family in the event of your death. Many people don’t understand that life insurance can be used as an investment vehicle and you can often earn interest on the money you contribute to the policy. Typically, this is true with whole life insurance and some companies even pay dividends, though they’re not always guaranteed. Because whole life is typically more expensive than term insurance, some people opt to buy term insurance and invest the difference into an investment vehicle of their choice, such as stocks, bonds, or mutual funds.


  1. 529 College Savings Plans.

 The earnings you make from a 529 College Savings Plan are not taxed by the federal government and usually not by the state when the money is used to make education-related purchases, such as on room and board, books, and tuition and fees. The contributions you make are not tax-deductible, however. In recent years, the 529 College Savings Plan has been updated to include purchases such as computer technology and related equipment, as well as services such as Internet access, as long as the equipment will be used by the beneficiary of the plan and their family during the years they’re enrolled in college. If you contribute to a 529 College Plan in amounts more than $14,000, you may be subject to a gift tax. So, be sure to consult with your financial advisor.


  1. Municipal Bonds.

Municipal bonds are mutual funds that invest in municipal bonds. The interest income on these types of bonds is exempt from federal taxes. What makes this an attractive option for investors is the tax advantages for high-income tax brackets. Municipal bonds are a great way to roll in money to fund your retirement account. Investors can select from a general obligation bond (GO) and a revenue bond. A general obligation bond is used by government entities and is not backed by revenue from a state or county project, such as a toll bridge. A revenue bond, on the other hand, is funded by sales, hotel occupancy, fuel, or other taxes.

  1. Long-Term Care Benefits.

Long-term Care Insurance income is generally non-taxable, and the premiums tax deductible. However, it will take a specialist to help you navigate the details of this insurance, as each state treats this matter differently. The income you receive from the company for sickness or injury is excluded from your reportable income. In order to qualify for the deductions, however, your policy must include the following features: not used to pay for expenses reimbursed under Medicare; not used for a cash surrender value or other money that can be borrowed, pledged, paid, or assigned; and guaranteed renewability.




Madura, Jeff. Personal Finance, 2011. Fourth Edition.