Tips for tax-advantaged investing for a lifetime

Wed Apr 15, 2009 | | Posted in Finances Retirement



Whether planning for retirement, making an effort to reduce income taxes or maximizing current income, there are many excellent tax-deferred or tax-deductible investment options to consider. There are also many tax advantaged accounts from which your financial adviser can choose, based on your goals. A good financial adviser will work with you to develop a detailed strategy that will help you achieve your long-term financial goals, while minimizing your current tax liabilities.

Tax-Advantaged Accounts

1. IRA
   An Individual Retirement Account – IRA – is a personal retirement fund. The earnings in a traditional IRA are not taxed until distribution and contributions may be tax-deductible under certain circumstances.
2. Rollover IRA
   This is an individual retirement account that allows you to move, or roll over, assets from a qualified retirement plan. Whether you are changing jobs, retiring, or receiving a distribution from your employer’s retirement plan, you can benefit from the tax-deferred growth potential of a Rollover IRA.
3. SEP IRAs
   With A Simplified Employee Pension IRA – SEP-IRA, the employer, not the employee, makes the contributions. Generally, the SEP-IRA is designed for self-employed persons operating as sole proprietor, as a partner or a corporation.
4. 401(k)
   With a 401(k) plan sponsored by an employer, employees can elect to invest a portion of their wages in a tax-deferred account. In addition, employers may contribute to a 401(k) plan through employer matching contributions or a profit sharing program.
5. Qualified Retirement Plans
   A qualified retirement plan is one that has been approved by the Internal Revenue Service and meets the requirements of the Internal Revenue Code. These plans receive tax advantages.

Tax-Advantaged Investment Options

1. Tax-deferred Fixed Annuity
   A tax-deferred annuity is an investment product issued by an insurance company. Because annuities are accorded “tax-deferred” status, you do not pay taxes on the earnings credited until the earnings are withdrawn. With an annuity you can accumulate interest in three different ways: interest on the principal, interest on your earnings and interest on the money you would otherwise have paid in taxes.
2. Tax-Managed Mutual Funds
   Tax-managed funds carefully consider how an investment will impact the shareholder’s tax bill. A mutual fund’s turnover rate, for example, can have a significant impact on an investor’s after-tax return.
3. Municipal Bonds
   Municipal bonds generally are tax-exempt debt obligations of states, cities, towns, municipalities, municipal authorities and governmental entities. The interest earned is free of federal income taxes and also may be free of state or local income taxes if purchased by residents of the issuing state.

In a Nutshell
Always do your homework. This time around you can take a top-down approach when investing. Whether you are planning for retirement, funding a college education or protecting your assets, a financial adviser can help. Always be on the lookout for some schmucks on the way to your financial happiness.

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Information contained herein is general in nature, and is provided for informational and educational purposes only. Past performance is no guarantee of future results. Talk to your financial adviser.

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