The increasing Federal and State taxes are making investors worry. Are there tax free investments? Yes, there are plenty of options you can try.
As we can see, taxes are modest on portfolios. Long term capital gains and most dividends have 15% federal rate. We saw the rates go up starting from 2013. And this trend will continue to unfold. On top of all the federal taxes, you can add state taxes as well to get a full picture. So, investors have a hard time all thanks to these taxes. Is there a way out? Well, there are several tax free investment options you can think of. What are they? Let’s take a Look Below.
Time for kiddie Roth
It is time to do something for your daughter. As you know, education loans must be killing her as she might be spending most of her earnings on paying the loan. Irrespective of what you are going to leave her in your will, you can go for smart investment for your daughter. Give her some money that she can fun to a Roth IRA. But she’s not allowed to touch it until she’s 60. She will have 40 years of tax-free compounding. She will be getting 7% a year on her investment. This is definitely an intelligent and sensible way to secure your child’s future.
Buy a Master Limited Partnership
Master Limited Partnerships (MLP) is a good investment strategy.
- MLPs on energy assets. We can take the example of pipelines.
- Their dividend pay is really attractive. You can expect something like 5%.
- The good thing about their dividends is that they are tax free, at least in the initial stages.
- The quarterly cash is nontaxable.
- However, you won’t get this tax deduction after a decade or two.
- In case if your heirs get these shares, they will have to restart the process with higher tax basis. Google MPL taxation for more information.
UGMA is a good choice
UGMA (Uniform Gift to Minors) is another tax free investment you can think of. You will be setting up a brokerage account for your daughter or son. You don’t have to pay taxes for the first $950 of annual income. But this may not be the case when it comes to the next $950, where you will have to deal with low bracket tax for kids. But the only problem with this investment is that your son will get ownership of this money once he turns 18. Well, there is no guarantee that he’s going to spend that money on his education, is there? So, I would suggest you to go for a modest account. If you are looking for Investment Advice On Stocks In A Bear Market, Click Here.
Open a Section 529 plan
Opening a Section 529 plan is another tax free investment that you can think of. However, the money has to be used for schooling and nothing else. Is there a drawback to this plan? Of course, there is. Stiff fees can wipe out the income tax savings. However, I would suggest you to open an account in a state where you have a favorable tax plan. For example, Utah has less cost. Or you can go to New York, where parents get a state income tax break. However, if your family is likely to get tuition assistance, then it wouldn’t be a good idea to go for this one.