Top Tax-Advantaged Investing Alternatives Beyond Company 401(k) Plans

Top Tax-Advantaged Investing Alternatives Beyond Company 401(k) Plans

Saving for retirement and other long-term financial goals is very important. For those that are looking to prepare and save for the future, taking advantage of tax-advantaged savings accounts and investment strategies can be a great option. While most people are aware of the advantages that come with investing through a 401k, there are other savings and investment accounts that can provide tax advantages as well.

Life Insurance: One conservative investment that you can make is to invest in whole life insurance policies.

Whole life insurance will provide you with life insurance protection and can also be a very conservative type of investment. When you purchase a whole life policy a portion of your premiums will go into an account that can be liquidated. This account will appreciate in value over time. While payments are made post-tax and the income earned will be taxed when it is withdrawn, the tax rate will likely be much lower since you will be in retirement.

Roth IRA: Similar to a 401k, an IRA account will provide you with great tax advantages. With a Roth IRA, the contributions that you make into the account will be made on a post-tax basis. When it comes to retire, you will not be charged any tax on your withdrawals. This will allow your account to grow tax free and will provide a great long-term benefit. One downside is that the maximum amount you can put into the account each year is limited to $5,500 if you are under 50 years old and $6,500 if you are over 50.

Manage Your Own Index Fund: Another way that you can manage your tax liability on your investments is to manage your own index fund. Index funds are very popular investment options because they diversify investments across the board and have low costs. One downside is that all of your capital will be in one investment, which could put a lot of tax liability on your shoulders when you finally sell. A better option would be to purchase industry and sector specific funds. These funds can cost a little bit more but will allow you to sell certain investments and hold others depending on what makes sense from a tax perspective.

Tax Free Investments: Finally, another good investment option to minimize your tax liability is to invest in tax-free investments. These investments, which incur a variety of municipal and other bonds, can provide you with a steady and low-risk return on investment. Furthermore, your investment income will not be taxed. However, there is a limited return on investment potential that can make them a less than attractive option for someone that is looking for any kind of growth.

Edward Schinik has been with the Investment Manager since 2009.