Well hey there, overachiever! Sounds like you’re crushing your money game already and maxing out the most obvious retirement accounts available to you. Congrats!
OK, so what now?
No one would blame you if you stopped here. Seriously, just maxing out your 401k for the next 30 years could build you a nest egg of $2.6M assuming an 8% return on your money. In that same 30 years, you’ll also become a Roth IRA millionaire!
But if you’re looking to achieve financial freedom early in life, or build generational wealth, maxing out your retirement accounts is just the beginning.
Here are some ways to put extra money to good use after maxing out your 401k and Roth IRA.
Max out your HSA
HSAs (aka Health Savings Accounts) are often overlooked because people think of them as short-term savings accounts to pay for medical bills.
But the truth is, HSA’s are awesome long-term investment vehicles. That’s because they wield a TRIPLE TAX ADVANTAGE! 🤯
This means that you pay no taxes on the money you contribute, investment earnings and growth are tax-free, and you can withdraw those funds tax-free too! The only catch is you need to withdraw those funds for medical expenses.
So, when used properly, you never pay taxes on the money you sock away into your HSA. Exciting, right?
To really see the money in this account (and the tax savings) skyrocket, you need to leave it invested and let it grow for years and years- meaning you’ll need to pay out of pocket for your medical expenses now.
In order to be eligible for an HSA, you need to have a “high deductible health care plan.” Ask your insurance company or your benefits officer at work if you have access to this awesome account.
Regular Brokerage Account
If you’d like to continue investing beyond the contribution limits of your 401k and Roth IRA, another option is to use a brokerage account.
While brokerage accounts won’t offer you tax benefits, they will give you a ton of flexibility when it comes to medium-term investing goals. And they can be particularly beneficial for folks who want to retire early.
Brokerage accounts don’t have age-based withdrawal limits. So a good way to use them is to save for bigger expenses you might incur 5-10 years down the line. Like saving up for a down payment on a home.
There’s also no contribution maximum. The sky’s the limit.
Having your retirement nest egg spread across a few different pre-tax and post-tax buckets is a smart idea. Later in life when it comes to withdrawing money and living off your investments, you can decide which account is best to pull money from to minimize your tax burden.
Just watch out for sneaky brokerage or advisor fees. We recommend setting up a brokerage account with a low-cost brokerage firm like Fidelity, Vanguard, or Schwab. Also, keep your investing simple by investing in highly diversified ETFs and index funds.
Real Estate Investing
Another great retirement tool is having an income producing investment property.
After maxing out your 401k and Roth IRA, you could set your spare savings aside and build up a downpayment for a rental property.
Owning and renting out real estate can generate monthly income, and also build equity for the future. It’s also a great way to diversify your portfolio even further outside of stocks and bonds.
Just remember though, real estate investing has it’s pros and cons. It’s not for everyone!
Between finding tenants for your property, performing background checks, managing the relationship and taking care of the home maintenance, owning a rental often ends up feeling like a part time job.
So make sure you’re up for the challenge before taking the dive. Here’s our beginner’s guide to buying a rental property, if you’re interested!
Pay Off Your Mortgage or Student Loans Early
Becoming debt-free is one of the best feelings in the world. Even if you have “good debt”, it just feels amazing to own everything outright.
So if you’re maxing out your 401k and Roth IRA, maybe your spare cash can be thrown towards your outstanding debts.
The smartest way to pay off debt is to prioritize high interest loans first. And definitely crush any “bad debt” first if you have that. Like credit cards, car loans, or personal loans. In fact, you should tackle any high interest debt before even maxing out those retirement accounts!
Student loans and mortgages typically have lower interest rates. But too much “good debt” can quickly become “bad debt”. Plus, some people just don’t want those monthly payments hanging over their heads anymore. So why not pay it all off if you have the means!?
Here are a few ways to pay off your mortgage early, and some strategies for paying off your car loans quicker.
Without any debt payments, you’ll have extra peace of mind, and free up your monthly cash flow!
Invest in Yourself
Self-investments often generate the biggest payoff. It might be hard to quantify the exact ROI, but that’s exactly why the rewards can be so significant.
Whether that means going back to school to get an advanced degree, taking online courses to further your knowledge, or starting your own side hustle, spending money to build your own knowledge and experience can be a worthwhile expense.
At the end of the day, our knowledge and unique skill sets is one of the most valuable tools we have at our disposal to grow our wealth for the future.
Learning never stops. Continuing to improve yourself and to keep up with new technology can help you earn more, and protect your job security.
However, it’s worth noting that you don’t always have to spend money to invest in yourself. There are tons of skills you can learn online, and free courses you can take advantage of!
Donate Some Money
If you’re maxing out your 401k and Roth IRA, chances are you likely have a few extra dollars to donate every year if you aren’t doing so already!
Charitable giving is a blessing, both on the giving and receiving ends. Being able to donate time or money to causes near and dear to your heart is an amazing feeling, and everyone deserves to experience this.
When you give away a small percentage of your money, you feel more connected to your community, and it can help to shape the world in a way that goes beyond yourself.
Personally, I like to commit to giving away a small percentage of my income every year. It helps to keep me accountable, and makes it easier to decide how much, where and when I should be generous.
Just remember, it’s really important to properly vet prospective charities before donating if you want to ensure your money will have the greatest impact!
Emergency Funds & Sinking Funds
If you’re already maxing out your Roth IRA and 401k, I really hope you’ve got a fully stocked e-fund. If not, you’ll want to go back and work on this.
Beyond a basic emergency fund, it’s way more safe to keep around 3-6 months of living expenses in liquid cash. It can give you much needed breathing room if an emergency pops up. It can also give you the freedom to say peace out to a job that’s making you miserable.
Another idea for your excess savings is to create sinking funds.
Sinking funds are basically buckets of savings for specific large expenses that you know are coming up in the next 1-5 years. Like car maintenance, big insurance bills, or even saving for an epic vacation.
Spend and Enjoy Your Money
Let’s be real here for a second. If you’re already maxing out your 401k and Roth IRA, you’re crushing it.
If you keep up this pace, later in life you probably won’t look back on your younger years wishing you had worked harder.
In fact, you’ll probably wish you had spent more money on your interests and hobbies, and more time with the people you love!
No amount of money has ever bought a second of time, so make sure that you are living life to the fullest right now.
Oversaving can lead to a harmful mentality. It’s important to live life with balance. Remember it’s OK to spend some of the money you busted your hump earning.
So, if you’re crushing it financially, it’s okay to make some mindful lifestyle upgrades, and spend a bit more lavishly on the things that truly bring you joy in life.
Related- Dying Broke: Should You Spend All Your Money Before You Die?
Save for Your Kids
If you’ve got little mini-me’s kicking around your house, there’s a decent chance that at least one of them might want to go to college when they grow up.
While saving for your kids’ college isn’t necessary, some parents still would like to try and give their kids a financial leg up in this way.
But before you open a 529 plan and start prioritizing your kids, you really need to make sure your own retirement is 100% on track. Helping them first, is like putting on their oxygen mask first – you could both die in the process.
If you’ve already fully funded your emergency fund, paid off high and low interest debt, and have maxed out your 401k and Roth IRA, you’re free to pursue other financial goals, like helping your kids with their financial future.
One of the best ways to save for your kids’ college is through a 529 plan. They have relatively high contribution limits, which vary from state to state, and their funds can be withdrawn tax free when used for qualified educational expenses.
But 529s aren’t the only option to save for kids. Here’s a few other options and alternatives to help them pay for big things like college.
What does it mean to “max out” your 401k?
Because tax-advantaged accounts like 401ks and Roth IRAs have such awesome tax benefits, you can only contribute so much. The IRS imposes relatively modest contribution limits each year.
For 2024, you can contribute up to $23,000 to your 401k. If you’re over the age of 50, you can take advantage of “catch up contributions” and invest an additional $7,500 in your 401k.
When it comes to Roth IRAs, the maximum contribution is much smaller. For 2024, you can contribute up to $7,000 to your Roth IRA and an additional $1,000 for anyone over the age of 50.
When we say “maxing out” these accounts, we’re referring to fully funding them right up to the contribution limits.
Yes, that’s a lot of money to sock away! But, it’s a great strategy to fully take advantage of tax benefits, and grow your nest egg quicker.
The Bottom Line:
If you’re already maxing out your 401k and Roth IRA, you’re absolutely crushing it! Congrats. You could certainly kick back and enjoy life more, but there are other steps you can take to continue to make massive progress.
Paying off both high interest and low interest debt, investing in real estate, maxing out your HSA or opening up a regular brokerage account are all great options.
My best advice is to begin with the end in mind. Picture the type of life you want to live in 30+ years time, and start funneling money towards those longer term goals. Buying a dream house, being debt free, traveling around the world… These are worthy savings goals that will bring you joy.
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