Q. I am tired of paying taxes and I hear there are tax-free investments out there. What are they, and should I use them?

A. Many physicians are heavily taxed, so it is no surprise you are looking for ways to invest that do not increase your tax burden. However, it is critical that you pay attention not just to the taxes paid but to the after-tax return on the investments. Sometimes it makes sense to pay more in taxes “now” if it leaves you with more later.

In this column, I’m going to discuss 10 ways to invest without paying any taxes at all. Naturally, with each method there is a way you could owe taxes if you are not careful, but for the most part, these investments are tax-free, at least at the time of deposit.

1. Municipal Bonds

Municipal bonds are a loan to a state or municipality. Municipal bond interest is federal income tax–free (although some bonds do produce interest subject to the Alternative Minimum Tax). A municipal bond from your state is also often state income tax–free. Of course, if you sell a bond or bond mutual fund for a gain, capital gains taxes would apply.

2. Treasury Bonds

Treasury bonds are a loan to the federal government. While not free from federal income tax, they are free from state income tax. This is one reason their yields are generally lower than those of corporate bonds. Like a municipal bond or bond fund, if sold for a gain, capital gains taxes apply.

3. Savings Bonds

Savings bonds, whether the standard type EE or inflation-adjusted, are like treasury bonds in that they are always free of state and local income tax. Federal income taxes are deferred until the bond is redeemed, perhaps decades later. If the proceeds are used for education, they are free from federal income tax, too.

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4. Anything in a Roth Account

The dollars you contribute to a Roth IRA, Roth 401(k), Roth 403(b), or Roth 457(b) have already been taxed, but all earnings from these accounts, no matter the investment, are free from federal, state, and local income taxes. There are two notable exceptions: First, income from leveraged real estate in a self-directed Roth IRA may be subject to Unrelated Business Income Tax. Second, if you withdraw money from the account prior to age 59½ and do not have a viable exception such as disability, a first home, or early retirement under the Substantially Equal Periodic Payments Rule, there will be a 10 percent penalty on earnings.

5. Anything in a 529 Account

529 contributions may provide a state tax credit or deduction at the time of contribution, but if the proceeds are used for approved educational expenses, there are also no federal, state, or local income taxes due on the earnings.

6. Anything in a Health Savings Account

Contributions to a health savings account (HSA) also provide a federal and state income tax deduction. If used to pay for approved health care expenses, there are no federal, state, or local income taxes due on withdrawals from the account. Note that New Jersey and California do not recognize HSAs, so contributions there are not state income tax deductions and earnings are not free from state income tax.

7. Basis

Many people forget that you never owe income taxes on your “basis” (ie, the purchase price, excluding commissions and other expenses) since it has already been taxed when you earned it. Basis is the amount the IRS considers you to have paid into an investment. For example, if you paid $10,000 for stock and then sell it when it is worth $15,000, you only owe capital gains taxes on $5,000. The initial basis is income tax–free. This characteristic allows many retirees to dramatically lower their tax bill in retirement.

8. Equity Real Estate Covered by Depreciation

Depreciation can be an important tax break, and the bonus depreciation enabled by the Tax Cuts and Jobs Act , which went into effect in 2018, offers significant savings. The income from equity real estate is often completely offset by this deduction, providing tax-free income. If you or your spouse qualifies for real estate professional status, that depreciation can even be used to offset your earned income. While depreciation is recaptured when you sell a house, it is recaptured at a maximum of 25 percent and can be deferred by doing “1031 tax-free exchange” of a property instead of selling it. If you do not sell prior to death, the depreciation recapture is eliminated for your heirs by the step up in basis at death (ie, when the basis of an appreciated asset is adjusted to current market value when it is inherited).

9. Non-Dividend-Paying Stocks

Qualified stock dividends are eligible for lower tax rates, but if the stock does not pay dividends at all and you do not sell the stock, then the investment grows tax-free. If left to your heirs, the heirs will also benefit from the step up in basis at death and receive an income tax–free inheritance. Of course, the risks and lack of diversification with picking individual stocks may outweigh this benefit, but a growth stock index fund with a yield under 1 percent is still tax-efficient.

10. Whole Life Insurance

Cash-value life insurance policies such as “whole life” grow in a tax-deferred manner. Partial surrenders of the policy allow you to access your basis first, which is tax-free. The death benefit is also always income tax–free. In addition, you can borrow against the value of your policy tax-free (just like you can borrow against your house, car, and investment portfolio tax-free), albeit not interest-free. Even with that tax treatment, it is hard to recommend whole life insurance to someone who doesn’t have the permanent need to have a benefit paid upon their death. The low returns (negative for the first five to 15 years) and high insurance costs make this a niche product that is appropriate for only a few physicians.

Do not be afraid to pay more taxes if it means you come out ahead after tax. For example, if a municipal bond fund yields 1.5 percent and a taxable bond fund yields 2.1 percent and you are in the 24 percent federal tax bracket, you can quickly see that 2.1 percent – (24 percent x 2.1) = 1.6 percent. In that case, you would be better off with the taxable bond fund than the municipal bond fund. Minimizing taxes is an important part of being an investor, but do not let the tax tail wag the investment dog.