Did you know that the government taxes up to 20% on capital gains?
Sadly, Uncle Sam always gets his cut through your paycheck or investment gains. While this is the law, it can be pretty demotivating for investors. After all, why risk your hard-earned money only to part with a share of it once it pays out?
Luckily, you don’t have to part with too much of your gains. Not when you can opt for tax-saving investments.
We have your attention now, don’t we? Read on as we explore some tax-saving strategies that’ll save you money.
1. Municipal Bonds
These are bonds you can buy from your local government. Most local governments use them to fund community projects like improving infrastructure.
Essentially, you’ll be loaning money to your local government when you invest in these bonds. With this comes various benefits you can’t afford to miss. The first is that you get an assured rate of return since the government doesn’t default.
You also get to enjoy various tax benefits. All municipal bonds’ gains are exempt from federal taxes. They may also be exempt from local taxes, depending on your state.
2. Indexed Universal Life Insurance
You’re likely wondering, “Since when is a life insurance policy an investment?” Well, many aren’t, but indexed universal life insurance is an investment.
Rather than being tied to a fixed interest rate, this policy is tied to specific market indices. This means that you can earn like you would in the stock market. But, you won’t face the same level of risk when the market faces a downturn.
It’s also one of the most popular tax-free investments. So you don’t have to pay taxes on the amount you withdraw.
Your beneficiaries also don’t have to pay death taxes when receiving the death benefit. This policy is an excellent way to save money now and protect your loved ones when you die.
3. 401 (k) Plan
People rarely regard the 401 (k) as a smart investing tool, but it is. You have two main options for your 401 (k) plan – traditional and Roth plans.
The traditional plan allows you to defer money from your earnings before tax. So, you can save a lot of money during your working years. But, you’ll have to pay taxes on withdrawals when you reach retirement age.
Conversely, the Roth plan lets you defer money after paying your taxes. So, the IRS doesn’t tax you on withdrawals after retirement. Navigating these plans can be tricky, so click here for some help.
4. 1031 Exchange
This is one of the reasons you see so many real estate investors living the good life. This exchange allows you to sell your properties tax-free if you reinvest your gains.
You can do this for decades and accumulate wealth if you know how to navigate the exchange. It’s a tax-efficient investing strategy you can’t afford to miss if you’re in real estate.
Leverage Tax-Saving Investments to Grow Your Wealth
Let’s face it: Getting away from Uncle Sam is near–impossible. But, you can reduce how much of your gains he gets by opting for these tax-saving investments. Don’t be left behind as more investors learn how to save money.
If you enjoyed reading this tax-saving investments guide, check out some of our other posts for more information