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I'm in my 20's. I'm a big saver and I think I've covered the basics, including:

  • Paying off all high interest (>3%) debt.
  • Getting the full company match out of my 401k.
  • Maxing out my Roth IRA for the year.

I still have a decent amount of cash flow, so my savings account is starting to grow rather large and earning a meager 0.5% interest. Since I need this money for a vehicle purchase in 5 years, I think (?) it would be unwise to put this extra cash into a Traditional IRA or 401k.

Is there a tax-advantaged way for me to invest this extra cash or have I expended all available options?

EDIT: After living life for 7 years and working in the financial sector, I've gained some additional knowledge that I've summarized in my answer here: Best way to start investing, for a young person just starting their career?

Chris W. Rea
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James Jones
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    Sounds like you have your bases covered. Why not enjoy some of that money while you are still young and can appreciate it? My mother used to tell me "It does you no good to have the biggest tombstone in the graveyard." – JohnFx Aug 04 '10 at 20:42
  • @JohnFx You're absolutely right. Maybe I should live it up more, but I'm pretty happy with the way I'm living now (I already buy too much junk and I ran out of vacation days). I'd trade my current vehicle in but I'm pretty attached to it. If it makes you feel better, I promise I'll splurge on the next vehicle purchase. :P – James Jones Aug 05 '10 at 04:46
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    You could always "invest" it in your fellow man through a charity if you are so blessed you don't know where to stash it all. =) – JohnFx Aug 05 '10 at 15:36
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    get married, that will solve your extra income problems (or at least allow you to contribute more into IRA) – Vitalik Dec 24 '10 at 03:42
  • It's really a lousy time to have this problem. The stock market's a bit too volatile to be attractive for an investment in that time frame, the bond market's really expensive and faces interest rate risk, commodities are probably overpriced and the US dollar's future is uncertain. Oh, and the usual "safe" plays like CDs/savings accounts pay next to nothing. <3 –  Dec 24 '10 at 03:52
  • I'm in a similar situation. I've been thinking about micro-lending (e.g.: kiva) but I'm still a little nervous about them. They claim a 94% repayment rate and you do get to pick who you lend to, but I don't see a great deal of information (like a business plan) to give me the warm fuzzies that they'll be able to repay. – Arluin Jun 19 '14 at 15:49
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    "Getting the full company match out of my 401k." That doesn't mean your 401k is "maxed". – user102008 Jun 19 '14 at 23:59
  • "I ran out of vacation days" - You could take days off without pay. – Alex B Jun 20 '14 at 21:25
  • Not every employer will approve time off without pay. – stannius Feb 05 '16 at 20:52

1 Answers1

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Options:

  • Buy Vanguard Bond Funds that are tax free for wherever you live.
  • Put the money into the highest yield savings account you can find (for amounts over 5k this is probably going to be 1.25%)
  • Put the money into the highest yield CD you can find.

(personally I did the first and it is working well).

Michael Pryor
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    How much APY will the 1st and 3th will generate? what are the downsides? – DFectuoso Aug 05 '10 at 17:12
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    Also don't forget the idea of CD laddering - a little more "maintenance" to keep track of, but also means you can earn high interest rates (on longer term CD's) but still get the money on a rolling basis, instead of locking it all up. – awshepard Aug 24 '10 at 14:19
  • Also consider Vanguard bond funds that are taxable if their yield covers the additional tax. –  Dec 24 '10 at 03:47
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    Oh, and keep your bond investments intermediate-term or short-term, to limit your exposure to rising interest rates. Especially if you're investing on a 5-year timeframe. –  Dec 24 '10 at 03:59
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    can you list off a few the vanguard bond funds that work well for you? – RohitJ Jun 19 '14 at 18:01