Are Tax-Sheltered Investments Right for You?

Daniel Penzing
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Invest Through Tax-Deferred Retirement Accounts

When you invest in a tax-deferred retirement account, you defer the taxes you would otherwise have to pay on the income you earn in that account until you take it out. On the one hand, that means you don’t have to worry about taxes as you earn returns and let your nest egg grow. On the other hand, you expect to pay taxes all at once at the end of the holding period, which could be bad for an unprepared person.

To decide whether the tax shelter is right for you, you’ll need to think about several things:

  • · How much money you need to amass to reach your goals …”
  • · How much money you expect to earn on your investments each year …”
  • · How many years until you retire …”
  • · Whether it’s better to invest in things outside of retirement accounts that have a lower tax burden but potentially higher returns
  • · How much you can pay in taxes now …”

A Note About Roth IRAs

Consider an Annuity

Annuities are the investment of choice for many retirees because of their guaranteed income – that is, income that you can depend on. As you approach retirement age, many factors can affect how much money you’ll earn each month. The stock market can crash. You may have to cover unexpected medical bills. You might become disabled and no longer be able to work. One thing that will probably remain stable, however, is Social Security. Social Security provides pension to retirees that is designed to provide them with a consistent income, but most people realize that it might not be enough to cover all of their expenses.

The beauty of annuities is that they are completely guaranteed. You pick the amount of income you want to receive each month (the annuity payout), and the insurance company writes you a check each month for that exact amount. And your income stays the same regardless of any changes that occur in the stock market or in your life.

Of course, the best annuities offer more than just guaranteed benefits. There are a number of different annuities on the market from which you can choose. The different annuities are based on different kinds of revenue.

Invest in Tax-Free Municipal Bonds

If you haven’t exercised your right to vote in the past few elections, you might miss out on one of the best ways to invest in your future – tax-free municipal bonds. While there are plenty of articles written about these types of investments, they’re notoriously confusing. That’s why we’re taking a step back and covering the basics of muni bonds … and why they’re a great investment opportunity for you.

What Are Municipal Bonds?

A municipal bond, also known as government bond, is a type of debt security issued by state, local or foreign governments. Municipal bonds are issued in order to finance public works projects or to manage a government’s budget. To make a long story short, municipal bonds are used to fund roads, bridges, schools, hospitals, utilities and other projects that will ultimately benefit the community.

The government pays back the investors for their support by paying interest on the bonds (because they were lent money), and the interest is generally exempt from federal income tax. However, before investors can receive the eligible interest, they need to hold onto the bond for at least one year and either live in the state or have a significant business or employment tie to an area.

Buy Real Estate and Earn Rental Income

If you are looking for a way to grow your wealth and amass assets … even before you reach retirement age, it may be prudent to dip your toes in the real estate market. If you buy a home or a second home, you can now begin collecting rent on it. If you manage to earn enough income, you can even offset your personal income. In fact, by offsetting your personal income, you can also increase your annual deductions and claim a higher tax refund.

Limited Partnerships

Are likely to become one of the key tax-sheltered investment that investors will be able to take advantage of in the UK.

Limited partnerships have not really been around here before, and they are not the same as the more famous venture capital limited partnerships common in the US.

So what are they?