What to Do After Maxing out Your 401(k) Plan
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So, you’ve maxed out your 401(k) plan, and now you’re wondering what to do next. First of all, congratulations on taking advantage of one of the best retirement savings vehicles available! Maxing out your 401(k) is a significant achievement, but it doesn’t mean your retirement planning stops there. There are several smart moves you can make to continue building your wealth and securing your financial future.
Here are some options for what to do after maxing out your 401(k) plan:
1. Contribute to an IRA: If you haven’t already, consider opening and contributing to a traditional or Roth IRA. Both types of IRAs offer tax-advantaged growth and income opportunities. Traditional IRAs provide tax-deferred growth, while Roth IRAs offer tax-free withdrawals in retirement. Depending on your income level, contributions to a traditional IRA may also be tax-deductible.
2. Invest in a taxable brokerage account: Once you’ve maxed out your tax-advantaged retirement accounts, consider investing in a taxable brokerage account. This type of account offers flexibility and liquidity, as there are no contribution limits or penalties for early withdrawals. While you won’t get the same tax advantages as with a 401(k) or IRA, a brokerage account can still be a valuable tool for long-term wealth building.
3. Consider a Health Savings Account (HSA): If you have a high-deductible health insurance plan, you may be eligible to contribute to an HSA. These accounts offer triple tax advantages: contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualifying medical expenses are also tax-free. You can use an HSA to save for medical expenses in retirement, making it a valuable addition to your overall financial plan.
4. Pay down debt: If you have high-interest debt, such as credit card balances or personal loans, consider using extra funds to pay it down. By reducing your debt load, you can save on interest payments and improve your financial situation overall. Once your debt is paid off, you’ll have more disposable income to put towards saving and investing for the future.
5. Explore alternative investments: Once you’ve taken care of your retirement savings and debt, consider exploring alternative investments such as real estate, precious metals, or peer-to-peer lending. These can provide diversification and potentially higher returns than traditional stocks and bonds. However, it’s important to carefully research and understand the risks associated with these types of investments before diving in.
6. Revisit your financial plan: Maxing out your 401(k) is a great accomplishment, but it’s also a good time to revisit your overall financial plan. Consider meeting with a financial advisor to ensure that your investment strategy aligns with your long-term goals and risk tolerance. You may also want to review your insurance coverage, estate planning documents, and other aspects of your financial situation.
In conclusion, maxing out your 401(k) plan is a significant milestone, but it’s not the end of your retirement savings journey. By exploring additional saving and investment options, you can continue to build wealth and secure your financial future. However, it’s important to approach these decisions thoughtfully and with a long-term perspective. Consider working with a financial advisor to develop a comprehensive plan that takes into account your individual goals and circumstances.
……. The average person already pays 30% in taxes…. Car registration fee, gas…. Yeah it has a tax built into it, sales tax, property tax (yes it’s combined into your rent), income tax, hidden tarifs on alcohol, etc,
I probably paid about 22k in taxes last year when I calculated it… and i only paid like 12k federal income….
Why do you guys take questions, but then say you wish you had more details? Take questions that have the details. It’s your show.
I’m a physician, my wife is an online professor. We make about 450k per year. We’ve maxed out our 401 k’s, I have a deferred plan to reach a combined 10% a year retirement savings, we have about 140k in 529’s, our oldest will start college in 3 years, and our only debt is our mortgage which is about 200k. We have cash flow every year, which varies depending how many trips we take. My question is where else could we invest in that is not retirement and safe from creditors? We’ve met with a few financial advisors but feel that we are not getting good advice. Thank you for your channel btw.
I’m not passing up an opportunity to make Roth contributions! Granted we didn’t have to choose. After maxing both of our mega back doors, we still fund a lot of taxable. My employer has discontinued deferred comp.
The lion kingdom's day job doesn't allow any roth 401k contributions after maxing out the traditional 401k.
Knowing what the future holds, and if FIRE is the way to go, or just continue on working somewhere I enjoy and doing something else as a hobby (or even working part-time as a lay minister), makes current investing complicated. I suppose one could split the difference and do both mega Roth and a taxable brokerage account. Not the most efficient for either path, but options for both, or even changing trains somewhere in the middle.
Alas, I don't have a 401k at work, and the 457b I have doesn't allow post-tax contributions, so for now I just max out the IRAs and the 457b, and next year with excessive funds I'll start contributing to a taxable brokerage account.
But still, I enjoy learning about the backdoor and mega options so I can advise others who may need to use them.
This is the order I try to follow:
1. Company 401k matching (Roth especially if you’re young.)
2/3.Max IRA (Roth especially if you’re young and/or lower tax bracket.)
2/3. HSA
4. Max 401k (Roth especially if you’re young.)
5. Taxable brokerage account
401k > HSA > Roth 401K > BD Roth IRA > Maybe Money Investing + Cash Reserves
Drive beaters if you have skill to fix them
Live with your folks for a few years after college to pay off your debt(s) and invest – Take advantage of time
Don't rent…save your dollars for a STARTER home (something you might be able to rent out later)
Don't forget to live, enjoy life & your relationships on the way. When you have "thrifty" friends, your dollars go a lot further.
No ROTH 401k in plan option? Donate to AT in 401k and then roll it over before earnings in plan
I guess I don't have to worry about mega back door roth when I am on minimum wage 🙁
Build a bridge account!
My employer's 401(k) at Fidelity started offering Mega Backdoor Roth in 2020 and it's available to everyone in the company, not just "super high income folks". Of course, an employee still needs to have enough income to be able to afford to fund the backdoor contributions after they've already contributed $19,500/$26,000.
You guys are awesome, keep up the great work! ❤
I was so upset my company (Fortune 500) doesn't offer a Mega-Roth. Right now both my wife and I max out each 401(k), each traditional IRA (backdoor), and then add to the taxable brokerage. I would rather add that money to the mega, but nope. We don't qualify for an HSA, so that's not an option. Haha
Is he maxing out an HSA???
I love that they answered the question by teaching the asker the framework for how to explore their goals and equip himself to answer the question for their own specific situation, rather than just "giving the person a fish".
This is such an underrated channel!!
The person who doesn't know where his next dollar is coming from usually doesn't know where his last dollar went