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| Basics | Funds | Allocation | Retirement | Investing | Terms | FAQ | |
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Tax-advantaged investing is merely any type of investment program or vehicle that strives to reduce the impact of taxes on investor earnings. There are tax-advantaged investment vehicles in just about every asset category. The name "tax-advantaged" generally refers to two different kinds of investments: tax-deferred and tax-free. Tax-deferred investments simply defer taxes until investment earnings are withdrawn, at which time the investor is more likely to be in a lower tax bracket. Tax-free investments produce earnings that are actually free from federal taxes, and sometimes free from both federal and state taxes. Tax-deferred investments include most retirement investing vehicles, like Traditional IRAs, 401(k)s, pension plans, annuities, etc. Municipal bonds, municipal bond funds, municipal money market funds and Roth IRAs, are considered tax-free. (Of course, there are several restrictions. For more information on municipal bonds, see the Investment Basics section of the library. For more information on the Roth IRA or tax-advantaged retirement options, visit the Retirement Planning section of the library.)
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