What Do I Invest In After Maxing Out My 401(k)?
Maxing out a 401(k) is a significant milestone in your journey towards financial security and retirement planning. It demonstrates a commitment to saving for the future and taking advantage of tax-advantaged accounts. However, once you reach the contribution limits of your 401(k), which for 2023 is $22,500 (or $30,000 for those aged 50 and over), you may find yourself asking, “What’s next?” Here’s a guide to navigating your investment options after maxing out your 401(k).
1. Individual Retirement Accounts (IRAs)
One of the natural next steps after maxing out a 401(k) is to contribute to an Individual retirement account (IRA). There are two main types:
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Traditional IRA: Contributions may be tax-deductible, and investments grow tax-deferred until withdrawal. You may be eligible for a tax deduction depending on your income and whether you’re covered by a workplace retirement plan.
- Roth IRA: Contributions are made with after-tax dollars, but qualified withdrawals are tax-free in retirement. Roth IRAs have income limits for contributions but are an excellent option for those who expect to be in a higher tax bracket in retirement.
The contribution limit for IRAs in 2023 is $6,500, or $7,500 for those over 50.
2. Health Savings Account (HSA)
If you are enrolled in a high-deductible health plan (HDHP), consider maxing out your Health Savings Account (HSA). Contributions to an HSA are tax-deductible, and both withdrawals for qualified medical expenses and account growth are tax-free. For 2023, the contribution limits are $3,850 for individuals and $7,750 for families, providing an excellent way to save for healthcare expenses in retirement while enjoying tax benefits.
3. Taxable Brokerage Account
After utilizing tax-advantaged accounts, turning your attention to a taxable brokerage account can offer greater flexibility. Unlike retirement accounts, there are no annual contribution limits, and you can access your funds at any time without penalties (though you will pay capital gains taxes on any profits).
Investing in a taxable account allows for diversification with various asset classes including stocks, bonds, mutual funds, ETFs, and more. Consider an investment strategy that aligns with your risk tolerance and time horizon.
4. Real Estate Investments
Investing in real estate can be a good diversification strategy and may offer rental income and potential appreciation. You can invest directly in rental properties, consider Real Estate Investment Trusts (REITs) for more liquidity, or look into crowdfunding platforms that allow smaller investments in real estate projects. Remember to conduct thorough research and consider the costs involved, like property management and maintenance.
5. Alternative Investments
As the investment landscape evolves, many are drawn to alternative investments such as commodities, hedge funds, cryptocurrencies, and peer-to-peer lending platforms. While these can provide excellent rewards, they also come with higher risks and volatility. Diversifying into alternatives can complement your traditional investments, but it’s essential to understand the risks and do thorough due diligence.
6. Education Savings Accounts
If education funding is on your radar, consider investing in a 529 Plan or a Coverdell Education Savings Account (ESA). These accounts allow you to save for future education expenses with tax advantages. Earnings grow tax-free, and withdrawals for qualified expenses are also tax-free.
7. Pay Off High-Interest Debt
Before diving into more investments, evaluate any existing debt, especially high-interest credit card debt. Paying off this type of debt can provide a guaranteed return equivalent to the interest rate you are paying. Reducing debt can free up cash flow for more productive investments in the future.
8. Emergency Fund
Ensure you have a sufficient emergency fund, typically covering 3-6 months of living expenses. This fund can provide peace of mind and prevent you from needing to sell investments during market downturns.
Conclusion
Maxing out your 401(k) is a commendable achievement, but it opens the door to a plethora of other investment opportunities. Consider a diversified approach that incorporates various asset types and accounts based on your financial goals, risk appetite, and time horizon. Consult with a financial advisor if needed, and always stay informed about your options, as the investment landscape constantly evolves. Moving beyond your 401(k) can enhance your financial health and build a robust foundation for a secure retirement.
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Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got talking about investment and money. I started investing with $120k and in the first 2 months , my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and gets more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family…
Poo my diapers oh no
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing below the $100k mark and in the first 2 months, my portfolio was reading $234,800. Crazy right!, I decided to reinvest a huge percentage of my profit and it got more interesting.! For over a year we have been working together making consistent profit just bought my second home at the beginning of summer.
If you max out your 401k you can still contribute to an IRA. They come in Traditional and Roth, as well. The contribution limit for 2024 is $7000, ($8000 if you are 50 or older).
Match, Roth, then Traditional
Buy some gold
1:25 Very important. This is what Dave does after tax deferred accounts are maxed out, using low/no load mutual funds with low turnover ratio within that mutual fund.
Don't overlook your HSA as well. Immediate tax relief, sets money aside for healthcare, and can be used for non health care costs at a certain point.
You should never buy mutual funds in a regular brokerage account, buy ETF’s way more tax efficient.
Invest in yourself!
I'm a big fan of the bogle 3 fund portfolio
Buy low cost index funds and stop paying for the mutual fund mangers Porsche. Actively managed funds underperformed the s&p index 80% of the time.
This is basically where I'm at. Maxed out 401k and Roth IRA (I do not have an HSA), and now I'm contributing money into a brokerage account in order to save up to do a real estate deal. Don't know how long that will take, but that's the goal (all company bonuses, etc. will go into this account…so hoping it adds up pretty quick).
Say you has 500GRAND in an s@p index fund, it averages about 10% a year dosent it? If you could just take out that 50k a year and live off that you'd always have that principle amount of 500GRAND.
Live off the eggs not kill the golden goose that lays them
Dave's assuming we want to be landlords by buying real estate which comes with it's own set of headaches and drama (= your time). Stick w mutual funds, ETFs and good individual stocks to boost returns unless you want to be changing out toilets every weekend or paying someone else to. No thanks.
Bitcoin.
VTI
Dave. Just say Index Funds in a Brokerage account
Crypto
Employ any diversification strategy and keep going. Most people pay more attention to the shiniest positions on the graph over a proper diversification. Diversify your funds or get a pro help. After my portfolio performance smashed over $180k returns from the last quarter, I have learned why experienced traders make enormous returns from the seemingly unknown markets.
Bitcoin
Wish this video would have been longer. No millionaire interview??
Tell him to see if hid company allows the steps required to do a MEGA backdoor Roth… you can put another ~$30,000/yr into your roth ira with it!
I'm currently in baby step 6 and am on pace to be in baby step 7 in a few months. At which time, I will be in a similar position to the caller. I will have 2 choices – max out the 401k or "max out" the taxable account. (Note: I will still max out the Roth IRA and contribute the minimum in the 401k to obtain the full company match in either scenario). The reason I'm considering the taxable account is so that I will have the option of retiring earlier than 59 and a half. If you plan on retiring after that, then I agree 100% with Dave's recommendation.
Bitcoin and ethereum
I like ETFs and stocks over mutual funds in a non-retirement account, but to each their own. Can't wait to one day be in the same boat as Nathaniel!
Dave probably maxes out a
1) Roth 401(K)
2) HSA
3) Roth IRA
4) SEP
5) Buying up all the land in Tennessee