From safe to sophisticated, there are plenty of investments that produce interest income. Like any investment, some have more risk than others, and depending on how you invest, your interest income could be taxable, or tax-free.
The nice thing about interest income, or any form of investment income, is you’re not going to pay FICA, which means you get to keep more of every dollar you earn.
Searching For Interest Income
Keep in mind, the more interest income you desire, the more risk you need to be prepared to take. With that in mind, here are several places to start your search for interest income:- Safe Sources Of Interest Income
- High Yield Investments
- Corporate Bonds
- Bond Funds
- International Bonds
Taxable Interest Income
Taxable interest income comes from investments like bank savings accounts, certificates of deposit, money market accounts, and government and corporate bonds.
- Learn more about taxes on interest income:
- Bonds And Taxes
- Reporting Interest Income on Form 1040
Tax-Free Interest Income
You can create tax-free interest income with investments like municipal bonds, or by placing your interest bearing investments inside of a ROTH IRA or ROTH 401k.
- Learn More:
- Municipal bonds
- ROTH IRAs
- ROTH 401k
Tax Deferred Interest Income
If you tuck your interest bearing investments inside of tax-deferred accounts (like IRAs or 401k plans) you can defer the taxes until you start taking withdrawals from the account.
You can also invest in a product like a fixed annuity, which pays guaranteed interest income, but you pay no taxes on the interest until such time as you take a withdrawal from the annuity contract.
A variable annuity is another investment product that allows you to own interest bearing investments inside the annuity contract and defer taxes on the interest income until such time as you take withdrawals.
- Learn More:
- What Is A Fixed Annuity?
- What Is A Variable Annuity?
