Whether you’re saving for a child’s college education or preparing for retirement, tax-efficient investments can make all the difference in helping you meet your financial goals. These types of investments offer tax advantages and allow you to earn interest on savings without paying a tax on the money.
Interest income from bonds is not taxed at the federal level
Whether you are a bond investor or just someone who receives interest payments, you should know that interest income is not taxed at the federal level. There are some exceptions to this rule, however. If you are a nominee for legal title to an account for another person, you should report all interest income on your federal tax return.
There are several types of bonds that can be bought, including federal, state, and municipal bonds. Municipal bonds are those issued by a state government or county. Federal bonds are issued by the government of the United States.
Bonds are a good way to make money in a fixed income portfolio, but there is also risk involved. You may lose your initial investment or you may end up with less than you paid for it.
Long-term vs short-term capital gains tax
Unlike the traditional income tax, capital gains are taxed at the time of sale. This is why a low capital gains tax can be an attractive investment option. As long as the gains aren’t sold before you reach retirement age, your investments can grow tax deferred for decades.
There are two main types of capital gains: long-term and short-term. Short-term capital gains are triggered when you sell an investment that’s held for less than a year. The rate of taxation isn’t all that different from ordinary income. However, long-term capital gains are taxed at a lower rate.
If you’re thinking of selling an asset in the near future, consider moving to a state that doesn’t levy capital gains taxes. This can save you a chunk of money.
Tax-deferred accounts provide foundation for retirement savings plans
Using tax-deferred accounts to set up a retirement savings plan is an ideal way to build up savings for retirement. These accounts are easy to open and offer many tax advantages.
These accounts are generally available through banks, brokerages, and workplace retirement plans. The funds in these accounts grow tax-deferred until they are withdrawn during retirement. Some of these accounts offer more tax benefits than others, so it is important to check with a financial planner.
Tax-deferred accounts offer savings opportunities for those with higher incomes. Some accounts allow you to contribute up to a maximum amount. Those with less income may qualify for a savings tax credit.
These accounts are also useful for those who want to pay for college. They offer tax advantages for investors who use the funds to pay for qualified education expenses. They can also be used to pay for K-12 tuition, student loan repayments, and apprenticeship programs.
Those who invest in real estate investment trusts (REITs) should be aware of the tax rules governing the distributions they receive. These dividends are the product of funds acquired by the company from various sources.
Some of these distributions may be classified as capital gains. However, the majority of REIT dividends are taxed at the ordinary income tax rate.
There are several benefits of holding REIT shares in a tax-deferred account. Investing in REITs in a tax-deferred account allows you to maximize their tax-advantaged status. You also avoid paying corporate income taxes.
When investing in REITs, you can purchase a single share or you can purchase an exchange traded fund (ETF) that tracks a REIT. You can also invest in a REIT through a mutual fund.
T. Rowe Price’s municipal funds earn high ratings
Whether you’re looking for a traditional brokerage account or a tax-advantaged retirement account, you’ll find a variety of services offered by T. Rowe Price. This firm employs hundreds of financial advisors who provide professional advice. They also offer a wide range of portfolio management and retirement income planning services. They work with an array of clients, including corporations, state and municipal government entities, and individuals.
Their website offers a wealth of information about various investment strategies. Users can also access news from before market hours and view real-time market data. They can also see the value of unrealized gains and projected cash flows.
Their screeners provide a simple way to search for investment-grade securities. The firm also offers an automated cash management program that sweeps excess cash into a mutual fund. This feature is not offered by all online brokerages.