Tax-Free Investing

by Charlotte Wood
(last updated February 21, 2009)

The age old adage "nothing is certain in life except death and taxes" rings true in most situations, however if you consider tax-free investing, you can avoid the latter certainty and I think that to be most exciting! There are ways you can avoid paying taxes on certain investment returns and that is one way you can definitely gain from investing in tax-free options. It's not too complicated and the benefits are obvious!

The main type of tax-free investing is through municipal bonds, or bonds whose funds go directly toward community and state improvement. Other tax-free income funds include national, state specific, insured, high yield, and short and intermediate term funds. These bonds are free from federal taxing and in most cases, free from state and local taxing as well. (Because the funds invested go toward general improvement, states don't usually tax the returns).

You can also look into a tax free income fund, which basically protects your municipal bonds. This kind of fund protects you against state and local income tax especially. Here are some various income funds for you to consider:

  • National and tax free funds: these invest in municipal bonds
  • State specific tax free funds: these focus on a specific state to exempt you from certain taxes
  • Insured tax free funds: these funds cover insured municipal bonds
  • High yield tax free funds: these usually deal with lower rated municipal bonds
  • Short and immediate term tax free funds: these funds are set according to their term and the longer the term, the greater return you'll receive
  • Tax free money funds: these funds can maintain a stable net value of $1.00 per share net asset value

As you can see, there are multiple ways in which you can invest in tax free investments and it just takes a little research on your part. If you have a stock broker, they should be able to help you set up whatever else you need and then you'll be good to go on your tax free investments!

Author Bio

Charlotte Wood

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