subject: Warning: What You Do Not Know About Municipal Bonds, Annuities, Treasuries And Limited Partnerships [print this page] Did you know that there are a few types of retirement accounts you should not meddle with? These are the types that people just seem to invest into over and over again. But little do they know that these retirement account investments just do not make sense.
Why is this so? This is because securities which are not taxable always produce less than their taxable counterparts. This statement means that you are giving away free yield when you invest in these securities which are inside retirement accounts.
You must avoid investing in the following securities.
Municipal bonds
You should not invest into them, especially inside a retirement account. This is because municipals are free from federal and state taxation if you buy a bond that is issued in your state. If you compare to bonds that pay full taxable dividends, the latter produces much more income.
Treasuries
People also make the mistakes of investing into Treasuries. What are Treasuries? Treasuries include Treasury bills, notes or bonds that are all in a retirement account. Although you are somewhat protected by the government due certain guarantees, this type of bond also produces interest free of state tax.
Why is this a bad thing? This is because bonds that are fully taxable generally will yield more than state-tax free Treasuries. Besides, the safety or government guarantee factor remains the same in other higher-yielding bonds.
Annuities
You might think they are great for retiring. They allow your investment to compound without being taxed. But annuities also have much higher annual operating expenses which will severely cut your profits.
If you ask the financial expert, he or she will tell you that buying an annuity inside your IRA (Individual Retirement Account) or 401(k) plan is redundant. It is not needed at all. It is similar to doing a double job, for producing the same, limited results.
Limited partnerships
What are limited partnerships? These are dangerous and high-cost and high-commission investments. They are mostly sold by salespeople dealing with investment products. The main idea of the sales pitch is the benefit of the tax benefits being generated.
However, there is a downside to investing into limited partnerships. But doing so within a retirement account will do more harm than good. It will cause you to lose many tax deductions advantage.
In addition, did you know that limited partnerships do not allow you to withdraw your investment money? Truth to be told, this is just one of the bad causes of investing in limited partnerships in a retirement account.
