What is the best way to invest my earning so that I can get taxed less?

Question

I want to invest my saving to not get taxed this year as much. I am single, no dependents, renting. I average aprox. 41k a year......Is there a way to invest to not get taxed at all or as much? IRA? 401K? I hope to buy a home in 2008 so will need my savings for deposit. HELP??? Any advice?

Answer 1

I agree with Joe, a tax free MM fund would be good at Vanguard, and look for one that is both tax free for federal & state taxes...Also if you want to go the IRA route look for a traditional IRA at Vanguard, again low fees, and it is tax deductible, with your adjusted gross income under $50,000 for a single person, plus you can borrow from the IRA without penalty for Ist home purchase. Good Luck.

Answer 2

With that short of time frame, I wouldn't think about using an IRA or 401k for saving for a downpayment. Also, with that timeframe, your risk tollerance is pretty much zero.

Anything that you put into a retirement account (IRA, 401k) should be just for that: Retirement.

Saving for a downpayment for next year should be done in a high interest savings account (INGDirect, HSBCDirect, etc). You will pay taxes on the interest but your principal will never go down.

Answer 3

401K is good for most of us especially if employers will match funds.

But, there is a fact employers don't like to talk about. They are not giving away money. At least part of the "free" funds actually come from your health and welfare benefits. You would probably been getting a little bit higher pay check (and higher taxes) if you did not opt for the matching. However, for most everyone, it is really to your advantage to put in as much as possible into the 401K and take the matching funds if available.

Answer 4

Consider a tax-free money market at Vanguard

Answer 5

401k and ROTH IRA's are your best bet.

Answer 6

401K

Answer 7

IRA