There are three ways to shelter investment income from federal income taxes besides investing in tax-exempt bonds: The first is by investing in assets whose returns take the form of appreciation in value, such as common stocks or real estate. As long as capital gains taxes are not paid until the asset is sold, the tax can be deferred indefinitely. The second is through investing in tax-deferred retirement plans such as IRAs. The third is to invest in the tax-advantaged products offered by the life insurance industry—tax-deferred annuities and variable and universal life insurance. They combine the flexibility of mutual fund investing with the tax advantages of tax deferral. L02