• Investments that yield tax-free returns are sought after.Dollars image by Jakub Niezabitowski from Fotolia.com
  
  Investors expect to make money from their investments through the accrual of interest or appreciation in the value of their financial product. When taxes are paid on the profits made it can result in a loss of a percentage of those profits. However tax-free investments can give investors the assurance that all their gains will remain in their pocket untouched by Uncle Sam. Here are some tax-free investment options that yield tax-free income.
  
  

Tax-Free Bonds

• Tax-free bonds such as municipal or state bonds are one of the most popular types of tax-free investments. This is because interest earned from municipal bonds is the obligation of the municipality, state or territory and can be excluded from your gross income. This encourages investors to purchase government bonds because all can benefit from tax-free income and this is also a form of risk free investment. If you purchase a state bond from your own state you are exempt from federal and state taxes on that investment income.
  
  

Savings Bonds

• A U.S. Savings Bond is a tax-free investment option that yields tax exempt investment income. To be exempt from taxes on all or part of the accumulated interest gained from your U.S. Savings Bond you must meet certain requirements. In the event that you have to pay for expenses incurred from qualified higher education in the year of redemption, you are exempt from paying taxes on your investment income. To qualify for a savings bond tax exemption in 2010, your maximum income should not exceed $86,400 for joint returns and $57,600 for any other type of returns.
  
  

Roth Individual Retirement Account (IRA)

• A Roth IRA is an investment instrument that gives the investor the benefit of tax exemption from making this type of investment. Generally accumulated interest on traditional IRA investments is tax exempt; however, when you begin to make withdrawals from your IRA account you are subject to taxation. However Roth IRA accounts allow you to withdraw your income without having to pay taxes on your gains. Another benefit of Roth IRA investments is that the income and the principal are both tax free.