Tax-Deferred and Tax-Free Investments


Introduction

Retirement plans including traditional 401(k)s and deductible IRAs, grow tax-deferred. In addition, there are certain investments which earn income that is not currently taxable, such as Series EE and Series I Savings Bonds, certain tax favored education plans, annuities, and cash value life insurance. And, if the Series EE and Series I savings bonds and education plans are used for college, you may never pay tax on the income.

Roth 401(k)s, Roth 403(b)s, and Roth IRAs are considered tax-free investment accounts. Provided you adhere to the holding period requirements established by the IRS, qualified withdrawals from this type of IRA are never taxed.

SUGGESTION: The monies in your retirement plans are growing on a tax-deferred basis (tax-free in a Roth 401(k), Roth 403(b), and Roth IRA); that is, the earnings are not being taxed while they are in the retirement plan. Since you're already getting a tax-deferred benefit, don't invest any of your funds in tax-exempt investments within a retirement account. It may be prudent to consider investing in higher yield taxable investments.


Share Article:


*Non-deposit investment products and services are offered through Sorrento Pacific Financial, LLC ("SPF"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through SPF: are not FDIC or otherwise federally insured, are not a deposit or guarantee of the bank, and may involve investment risk including possible loss of principal. Investment Representatives are registered through SPF. The bank has contracted with SPF to make non-deposit investment products and services available to bank clients.


SPF and its Registered Representatives do not provide tax advice. Please consult a qualified tax professional for advice on tax related matters.