Life insurance is one of the few choices available when you’re looking at Tax Sheltered Investments. Other options include Municipal Bonds, Roth IRA, 529 College Plans, and Health Savings Accounts. There are pros and cons with each one, but life insurance is at the head of the class.
Municipal Bonds
Income distributions from municipal bonds aren’t subject to federal income tax, although they may be subject to state income taxes. This is why the interest on these bonds is generally lower than taxable bonds. Buying and selling municipal bonds on the secondary market means gains from those sales will be taxed as ordinary long or short-term capital gains. There aren’t income limits for this tax free benefit. With cities in bankruptcy and pension expenses escalating, these low-risk investments could take a huge chunk out of your investment portfolio.
Roth IRA
Roth IRA contributions are allowed only if you don’t exceed income qualifications: $132,000 for single filers and $194,00 for married couples. People 49 and younger may contribute $5,500 to a Roth IRA annually, and people 50 and older may contribute $6,500. This investment is good as an add-on to other investments that you have in your portfolio, but it’s not enough to help you reach your retirement goals.
529 College Plans
These plans provide great tax free benefits like no contribution limits and portability between states. However, this income can only be used for college tuition and there are penalties for withdrawals that aren’t tuition events. If there’s excess money in the account after the completion of college, there are penalties to access those funds.
Health Savings Account
There are numerous advantages and qualifications to successfully use a Health Savings Account, also known as an HSA. At the end of the day though, these funds can only be used for health care services.
Life Insurance
Life Insurance is a wonderful option if you’re looking for a return on your investment. It grows tax free and features tax free distributions. There are no age restrictions and no contribution limits. You can customize a policy to fit your plans, and you can do it all without worrying about invasive taxes!