What should you while waiting to see how Congress reacts to President Bush’s proposals to create new tax-free investment accounts?
Don’t buy cash value life insurance as an investment vehicle. Among the attractions are tax-free buildup as well as the opportunity to receive tax-free withdrawals and loans. If tax-free investment accounts are created, you might be better off buying term insurance and investing the savings in the new accounts.
Reconsider purchasing variable annuities. The tax-deferral opportunities of variable annuities won’t stack up well against the opportunity for tax-free income.
Be careful about buying convertible bonds as opposed to convertible preferred stocks. preferred stocks pay dividends, which might be tax-free, to a certain extent. Why earn taxable interest from convertible bonds when income from convertible preferred stock may be tax-free?
Stay short in municipal bonds. The proposals, which might create tax-free investment vehicles, pose risks for long-term municipal bonds. For now, you should keep new investments in municipal bonds to maturities of less than three years.