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Investing...?

I have a question for anyone with sound advice to offer. My base income is $128K per year. I participate in my company's 401k savings plan to the tune of 11%. I don't qualify for a Roth IRA. Are there any other Pre-tax vehicles I can take advantage of? It seems that I am in this income area where options are few. I also recently sold a home, and profited by about 100K. The issue here is that unless I am willing to drive for an hour or more to the office and then an hour home in the evenings, I have to buy a new place in an undesirable area, or just rent. Am I headed for disaster by not being in the real estate market? Should I buy something I can afford, even if the neighborhood is iffy? I have zero debt by the way. No credit card debt. I do lease a car, but receive a car allowance from my company that covers the expense. HELP!!!

Public Comments

1. One tax shelter you can take advantage of is a Health Savings Account. You need to buy a high deductible health insurance policy and can contribute the lesser of the deductible or $2250 per year. It is invested much the same as an IRA. The money in the account can be used penalty free for medical items, drugs, eyeglasses. etc. If you don't use the money it can be rolled over year to year. There is no contribution limits and at 65 the money can be withdraw tax free without penalty. For a young healthy person this is an ideal way to shelter more savings. As far as buying in an iffy neighborhood, it could be a good idea if the area is ripe for gentrification. You have to scout around and see if there is any likelihood of that. This is a good time to buy real estate. It is a buyers market in many parts of the country. Finally, even if you can't grow your investments tax free, invest in the stock market. You can manage you investments to minimize taxes. It is one of the only real ways of staying ahead of inflation.
2. Your comment on pre-tax dollars is an interesting one and I want you to think about something. Let's say that you are a farmer and at the beginning of the season you have a choice presented to you. You can either pay tax on the seed that you are buying to plant or you can pay no tax on the seed and instead pay taxes on your harvest at the end of the year. Which way would you go? The government is giving us the same choice. We can invest our pre-tax dollars today and in exchange we are taxed on the entire value of our investment in the future (when we are probably in a higher tax bracket). This is why we are forced to take withdrawls form our 401K and IRAs when we are 70.5 years old, whether we need to or not! The government wants their cut while we are still around. Oh yeah they get it when we are gone too. The moral to the story is do not limit yourself by only thinking pre-tax investments. The smart farmer pays tax on the seed. Paul pupp52@yahoo.com