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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?

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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 4 '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 5 '10 at 4:46
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 5 '10 at 15:36
get married, that will solve your extra income problems (or at least allow you to contribute more into IRA) – Vitalik Dec 24 '10 at 3:42
"Getting the full company match out of my 401k." That doesn't mean your 401k is "maxed". – user102008 Jun 19 '14 at 23:59
up vote 4 down vote accepted


  • 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).

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How much APY will the 1st and 3th will generate? what are the downsides? – DFectuoso Aug 5 '10 at 17:12
Right now Bond Fund tax free will get you about 3-4%. A CD will get you about 2-3%. See – Michael Pryor Aug 5 '10 at 18:05
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. – fennec Dec 24 '10 at 3:47
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. – fennec Dec 24 '10 at 3:59

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