Hi,I am currently a postdoctoral researcher making approx $36k annually (before taxes), paid on a monthly basis. I have no debt (credit card or otherwise) and am 28 years old. The nature of my job doesn't allow me to make IRA (traditional or Roth) contributions (as my salary falls under the category of a "taxable grant". I don't officially have "earned income", i.e. my salary gets reported via a 1099G form, not a W-2). And after all my expenses, I can set aside about $200/month. So here is my question:* Are there any tax deferred vehicles (other than IRA) that I couldcontribute to in order to maximize my gains in the long-term? I'd like to invest in an index fund for starters, and realize thatinvesting 2k/year for 40 years (@ 11%) would yield > $1 million,however, for me, a lot of that would be eaten up in taxes uponliquidation. Any advice on what the best long-term strategy forsomeone in my situation should be, since I can't take advantage of IRAs at this time?Thanks much for your time.
You will only be able to make IRA or Roth IRA contributions in years when you have earned income. So if your income is not considered earnings, you may not be qualified for those either.If you really must have tax protection, then your only choice is an annuity. However, Fools don't like them as they are often costly, and surrender fees make it difficult to change if you pick one that performs poorly. So make sure you check out the low cost ones offered by Vanguard, Fidelity and others if you choose to go with an annuity.If you plan to do an Index fund, they usually have very low capital gains distributions. So long term buy and hold in a taxable account should work well for you. This gives you many options for your money with minimal income taxes--until you sell the shares to spend the money. Then you pay at capital gains rates.
Actually, you may be a good candidate for a universal life insurance type of product.I suggest you visit Insurance board which contains multiple threads discussing UL-VUL products. Especially, you should review this post: http://boards.fool.com/Message.asp?mid=15015882. It compares Roth IRA with a UL-VUL.Universal life has a lot of tax protection features that you desire and being a doctor with a (potentially) very high income in the late years of your career may also make it very beneficial.Typically, these policies are not for everyone. But you just may be the right person.Good luck!Vlad
<<<Universal life has a lot of tax protection features that you desire and being a doctor with a (potentially) very high income in the late years of your career may also make it very beneficial.>>>Not to slam our young distinguished researcher, but he is a PhD. and will only make a very high income if he becomes Nobel Prize material (hopefully so). Don't confuse him with MD who typically will make high incomes but traditionally are bad investors/managers of wealth.JLC (MD)
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