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Tax Blog

More Money in Your Pocket: Tax-Free and Tax-Reducing Investments

Investors need to minimize their tax liability. This allows for higher levels of disposable income, as well as higher net investment returns, which are key to strengthening investments into long-term profits. There will always be a level of risk associated with investments, but there are options that will lower the risk of a large tax liability through the following tax-free and tax-reducing types of investments.

1.    Roth 401(k) Plans: With the rise of Roth IRAs, Roth 401(k) Plans are a beneficial type of tax-free retirement plan that employees should look into. These plans are employer-sponsored and allow for the investment of after-tax dollars. This means that qualified withdrawals will be tax-free at the time of retirement. There are no income limits with this type of retirement plan and the contribution limit for 2024 is $23,000 for those under 50 years old and $30,500 for those 50 years old and older.

2.    Qualified Opportunity Funds: This type of investment was designed to bring business and real estate into low-income areas referred to as opportunity zones. These zones must be classified and approved to gain the title. Capital gains are used in these funds and the taxes on those gains are consequently deferred until either the fund is sold or until December 31, 2026, whichever comes first. Depending on the length of the gains held in the fund, the larger the percentage of the gain that will not be taxed once the asset is sold. After it is held for ten years, there will be no federal income tax upon the sale of the asset.


Community Development Entities: Similar to QOFs, the New Markets Tax Credit is a program that focuses on developing economically distressed communities through investments called Community Development Entities. The tax benefit to these investments is a tax credit for up to 39% of the investment amount to use on federal taxes for seven years. 


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