6 Tax Saving Investments to Jump on Right Now
Tax season is upon us; for many of us, that means feeling the pinch of Uncle Sam’s hand in our pockets. But fear not! With the right savings investments, you can reduce your tax burden while generating wealth.
That’s right; it’s time to jump on some tax-saving investments and take control of your finances. This article will explore six investment options to help you save on taxes.
Get the guide to form 1096, and dive into some tax-saving investments.
National Pension System (NPS)
Under NPS, you contribute towards your retirement funds. If employed, the contributions are deducted by your employer and are invested in a mix of equity, corporate bonds, and government securities.
NPS contributions are covered under section 80C and section 80CCD of the Income Tax Act
Only a small percentage is eligible for tax; only 1/3rd of the amount accumulated is tax-free, while the rest is treated as income and taxed at a lower rate.
At retirement, you withdraw a lump sum, and the remaining will be paid out as a monthly pension for your lifetime.
United Lip Insurance Plan(ULIP)
ULIP also offers tax benefits under Section 80C of the Income Tax Act. under ULIP, you can claim a deduction on the premium paid towards the policy form from your taxable income. These deductions reduce your tax liability.
Your proceeds from a policy are also tax-free if the sum assured is at least ten times the annual premium paid.
ULIP is an ideal investment plan to save on taxes while accumulating your finances.
Individual Retirement Account ( IRA)
IRA is classified into two types of accounts:
- Traditional IRA
- Roth IRA
Traditional IRA allows you to chip in pre-tax dollars to your account, meaning the money contributed is usually deducted from your taxable income. Likewise, taxes are also applied when you withdraw funds from the account, so make sure you’re familiar with traditional IRA distributions and taxes that are applied when you do so.
On the other hand, Roth IRA is made with after-tax dollars, meaning that the money you contribute has already been taxed. Contributions to Roth IRA grow tax-free, but keep in mind that a gold IRA is also an option. If you want to learn more about this, you can head to Martin Thomas’s site where he discusses the best gold IRA sites in more detail.
Health Saving Account (HSA)
HSA is a savings account that sets aside your money for medical expenses. With HSA, you can contribute pre-tax dollars from your paycheck to the account, meaning they are not taxed.
Funds on the account can be used for various reasons:
- Doctor’s visits
- Prescription medication
- Medical procedures
With HSA, your medical expenses are sorted, and your funds earn interest in the account, which is also tax-free.
State and local governments hand out municipal bonds to fund public projects. When you buy a municipal bond, you lend money to the government, and in return, you get interest income on your initial investment.
Interest earned on the fund is exempt from federal income tax. It means you earn a higher after-tax return subject to no taxation.
529 is an investment plan that helps you put money aside for your child’s education. It is advantageous since contributions are not tax-deductible on your federal tax return. Your contributions grow tax-free, and any contributions made are also tax-free.
With the few tax-saving investments listed in the article, you can enjoy a few benefits from the tax man. It is always important to know the risks an investment option carries, and you can always consult with a financial advisor before investing.