so your plan is to spend $199 for an iphone 4 now, sell it when the 5 comes out just a few months later, and then you pay $599 (plus tax) for an iphone 5?
this, as opposed to just waiting and spending $199 on an iphone 5?
i would advise against this. you won't be able to recoup as much as you hope when you sell the 4, especially when everybody else will be attempting to do the same thing. by waiting, you'll save yourself the hassle, and you'll be saving yourself a lot money, a couple hundred at least.
my advice is to just wait. just because your contract expires does not mean you're forced to sign another one. you can continue to use your phone on your current plan just the same. don't make any decisions until the 5 is announced. who knows, maybe they'll announce a sprint version and you'll be able to stick with your family plan.
he's suggesting that you start service off-contract. the $40 pixi mentioned is an unsubsidized price, so you'd be able to buy an iphone 5 for the full-subsidized price of $199.