Taxfree investment:

Municipal Bonds:

Municipal bonds are bonds issues by States and local governments. Income earned from these investments is often free of Federal tax but they may also have a lower interest yield than other forms of investment.

Treasury Bonds:

The Federal government also issues bonds, at least two of which can earn tax deferred income. The series I and E/EE bonds are not taxed until redemption making them a possible investment option for those seeking to lower short term taxable income on investments.

Life Insurance Policies:

Money invested in life insurance policies accumulates and increases in value without tax. Examples of such policies include universal and whole life policies through which an account value is added to over and above the monthly premiums paid on the policy. In certain instances the distribution of life insurance after the policy holder's death may be tax free and should the holder survive the maturity of the policy, the proceeds are then subject to tax i.e. tax deferred.