The Best Tax-Free Investments

Shawn Plummer

CEO, The Annuity Expert

The Best Tax-Free Investments

1. Permanent Life Insurance Loans

  • Description: Borrowing against the cash value of a permanent life insurance policy.
  • Why Best: The loan is tax-free as long as the policy is active. It offers flexibility in repayment and can be a source of liquidity without disrupting investment growth.

2. Fixed Indexed Annuities using Roth IRAs

  • Description: A fixed indexed annuity within a Roth IRA combines the benefits of both.
  • Why Best: Earnings grow tax-free, and withdrawals are tax-free after age 59½ if the account has been open for at least 5 years. This setup provides a stable income with the added advantage of Roth IRA’s tax benefits.

3. Municipal Bonds

  • Description: Bonds issued by local governments to fund public projects.
  • Why Best: The interest earned is exempt from federal income taxes and possibly state and local taxes. Ideal for high-tax-bracket investors seeking steady, tax-free income.

4. Health Savings Accounts (HSAs)

5. 529 College Savings Plans

  • Description: Savings plan for future education expenses.
  • Why Best: Contributions grow tax-free, and withdrawals for qualified education expenses are not taxed. Some states offer tax breaks on contributions.

6. U.S. Savings Bonds Series I

  • Description: Low-risk savings product backed by the U.S. government.
  • Why Best: Interest earned is exempt from state and local taxes. Federal taxes can be deferred until redemption or maturity. Additionally, interest may be tax-free when used for education.
Best Tax-Free Investments

Comparing Tax-Free Investments

Investment TypeTax AdvantageIdeal For
Permanent Life Insurance LoansTax-free loansIndividuals needing liquidity
Fixed Indexed Annuities (Roth)Tax-free growth and withdrawalsRetirement planning with stable income
Municipal BondsTax-free interestHigh-income investors seeking steady income
Health Savings Accounts (HSAs)Triple tax advantageHigh-deductible health plan holders
529 College Savings PlansTax-free growth & withdrawalsSaving for future education expenses
U.S. Savings Bonds Series IState & local tax exemptionLow-risk investors, education funding


Understanding the best tax-free investments, like permanent life insurance loans, fixed indexed annuities using Roth IRAs, municipal bonds, HSAs, 529 plans, and U.S. Savings Bonds Series I, equips you with strategies to maximize your financial growth while minimizing tax liabilities. Each option serves unique financial goals and provides substantial tax advantages. Contact us today for a free quote.

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What is a reasonable interest rate on municipal bonds?

The answer to this question varies from one municipality to the next, as each issuer has unique market conditions and credit ratings.

What are the interest rates on a 529 plan?

The interest rate on a 529 plan depends on the type of account, the state in which it is held, and the investments chosen within that plan.

Can my HSA be used instead of health insurance?

No, your HSA cannot be used instead of health insurance. However, it can be used to pay for qualifying medical expenses not covered by health insurance. This includes deductibles, copayments, and coinsurance.

What is the difference between permanent and term life insurance?

Permanent life insurance policies cover an entire lifetime, and the premiums remain fixed. Whereas a term life insurance policy provides coverage for a predetermined length of time, usually from one to thirty years, and the premiums are adjustable. The benefit is paid out only if the insured dies during the specified term.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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