Investing/Tax advantaged investing

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There are three types of tax advantages that one can possibly gain when investing.

  • Tax Reduction Now
  • Tax Deferred Growth
  • Tax Free Withdrawals

Tax Reduction allows one to take the investment and deduct directly from the income reported to the IRS.

Tax Deferred Growth allows someone to postpone paying taxes on the capital gains, interest, or dividends from an investment until one takes a withdrawal.

Tax Free Withdrawal is the ability to withdraw funds from an account or sell an investment without paying taxes on the gains within the investment.

Other topics that are important:

  • Marginal Tax Rates vs. Average Tax Rates
  • Capital Gains - Long Term vs. Short Term
  • Dividend Tax Rates
  • Interest Tax Rates - Corporate, Municipal, Federal
  • Real Estate Depreciation and effects on taxes

Types of Tax Advantaged Accounts

  • Traditional IRAs
  • Roth IRAs
  • Simple IRAs
  • SEP-IRAs
  • 401k Plans
  • Roth 401ks
  • Defined Benefit Plans
  • Profit Sharing Plans
  • Annuities
  • Life Insurance Wrappers