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Anyone know where else I can put my savings after I max out my IRA and HSA for the year?

So I maxed out my Traditional IRA ($5500) and HSA ($3600) for the year. I can't do a Roth because I make too much. Where else can I put my long term savings? I'd like to avoid/defer taxes (legally) and be able to put it into mutual funds. Thanks.

Nov 18, 2013 by Steve in  |  Flag
5 Answers  |  8 Followers
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4 votes

Another option may be to pursue investing in a very tax efficient way. Rather than lock the funds up under a variable annuity wrapper consider purchasing mutual funds or ETF's that have tax efficiency as a mandate. That means the manager will seek to avoid taking capital gains unless absolutely necessary. The reason that this may be valuable to you is that while VA's do defer taxes for a time, when the investor takes any distributions the gain is taxed as income rather than capital gains. If, as you state, you are in a higher tax bracket, capital gains taxes are probably less than income taxes. The use of tax loss harvesting would also be beneficial by matching up, as well as possible, gains and losses aiming for a net effect of zero. This takes a little more work but is well worth it. The other added benefit is your money is not locked up with any restrictions. Best of luck!

Comment   |  Flag   |  Nov 19, 2013 from Kingsport, TN

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Steve, Here is an outside the box answer, but depending on your age, whether or not you have children or grandchildren, and whether this is money you will need or not, a 529 plan is an alternative way to defer taxes and potentially take advantage of state income tax deductions. I believe this strategy would make sense if this money could likely be used by some family beneficiary for higher education purposes.

If this money is needed for your retirement a solution such as a variable annuity or a buy and hold equity portfolio may be a better option. Please speak to a trusted advisor in your area so they have a complete understanding of your goals and needs before considering a solution.

Comment   |  Flag   |  Nov 19, 2013 from Bloomington, IL

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Thank you for the question. If you maxed out your Ira, if you do not have a 401k plan the the next best option would be a Variable Annuity. I would suggest fidelity or vanguard. Expense is about .25% per year access to various no load no transaction fee funds. Once you turn 59 1/2 you have full access to the account with no surrender fees or restrictions. No limit on contributions and money will grow tax deferred. Let me know if you have any questions. Michael www.VisionaryWealthMgmt.com

Comment   |  Flag   |  Nov 18, 2013 from Farmington, CT

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Several good answers already. Another thought might be to look into tax free Municipal bonds or bond funds. If the bonds are issued in your state, they might also be free of state tax as well.

Comment   |  Flag   |  Nov 19, 2013 from Springfield, MO

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Rich Winer Level 20

Steve, If your income is stable, you have sufficient liquid assets and you are in good health, you may want to consider using life insurance as an investment. When structured properly, a life insurance policy can provide you tax-free growth and income, in addition to the death benefit. Unlike insurance you purchase for income and lifestyle protection, the goal in this strategy is to purchase the lowest possible death benefit for the amount of money you want to shelter and grow inside the insurance policy each year. The lower the death benefit, the lower the insurance costs, the more effectively your money can grow tax-free.

You can invest in various types of insurance depending on your return objectives and risk tolerance. Whole life provides guaranteed interest, like bonds. Indexed life provides a rate of interest indexed to the stock market, with no risk of principal loss in the stock market. Variable Universal Life provides the most growth potential via mutual funds and the most investment flexibility. However, it also carries the most risk.

While this approach is not for everyone, for the right individual in the right situation, life insurance can be an extremely effective tax-free growth and income investment. However, due to the illiquid nature of life insurance, you must work with a financial advisor who knows how to incorporate life insurance into your overall financial planning and investment portfolio, and who can help you manage the policy and its investments (if any) effectively. Feel free to contact me if you have any questions on this approach.

2 Comments   |  Flag   |  Nov 19, 2013 from Woodland Hills, CA
Rich Winer

To whomever gave me two negative votes (and anyone who might add to them), You have only demonstrated your ignorance of the fact that the world's wealthiest families have strategically and effectively used life insurance to grow and preserve their wealth over generations, sheltering multi-millions of dollars from taxes. In his book The Retirement Savings Time Bomb and How to Defuse It, Ed Slott (a CPA and one of the country's leading authorities on IRAs and Retirement Distribution Planning) writes about the tax-saving, wealth-building benefits of life insurance. Note that I said a life insurance strategy can be extremely effective for the right individuals in the right circumstances. It is not appropriate for everyone and the majority of anyone's assets should not be invested in life insurance. That said, it's an extremely effective way to grow your retirement savings tax-free, generate tax-free retirement income and build multigenerational wealth. Advisors who don't consider such strategies for their high income, high net worth clients are doing them a great disservice. I often refer to life insurance, when used as I have recommended, as an "Alternative Roth IRA" because it is often an ideal investments for individuals like Steve who earn too much money to contribute to a Roth IRA. The life insurance strategy provides the same benefits as a Roth IRA, albeit at a greater cost. However, the extra cost gets you a tax-free death benefit, which a Roth IRA does not provide. If one passes away without having to use the money in his "Alternative Roth IRA," his beneficiaries will receive far more in a tax-free death benefit than the money invested. With variable universal life insurance, an investor has unlimited growth potential, the ability to invest in stocks, bonds and other asset classes, the ability to alter their asset allocation in accordance with changes in the economic environment, tax-free growth, tax-free income and a tax-free death benefit. The CPAs and estate planning attorneys I work with understand that, and love this approach for their high net worth clients.

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Flag |  Nov 20, 2013 near Woodland Hills, CA
Rich Winer

P.S. The fact that life insurance provides all the benefits of a Roth IRA and more is exactly why our government places limits on how much you can invest inside a life insurance policy for a given death benefit. The fact that life insurance has sheltered so much wealth from taxes is why the government has often tried to make the cash value inside life insurance taxable. Still, there are no limits to how much you can invest in a life insurance policy (you just have to increase the death benefit) and no required minimum distributions. You get tax-free growth, tax- free income if you want it and a tax-free death benefit. That said, you don't want to invest money that you will need in the next ten years in a life insurance policy. Other than that limitation, you won't find a more effective vehicle to build and preserve multigenerational wealth.

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Flag |  Nov 20, 2013 near Woodland Hills, CA

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