Maxed Out Your Roth IRA? Here’s What to Do Next

A Roth IRA is a powerful tool for tax-free growth, but it has annual contribution limits. If you’ve hit the maximum allowed for the year, you may be wondering how to continue building your wealth. Fortunately, several other investment options can complement your retirement savings strategy.

Rather than letting extra cash sit idle, consider alternative accounts that align with your financial goals. From tax-advantaged plans to diversified investments, there are plenty of ways to keep growing your money.

Traditional IRA Contributions

Once you’ve reached the Roth IRA contribution limit, a Traditional IRA can be another way to save for retirement while potentially lowering your taxable income. Contributions may be tax-deductible depending on your income and whether you or your spouse have a workplace retirement plan. For 2024, the total contribution limit for both Roth and Traditional IRAs combined is $7,000, or $8,000 if you’re 50 or older.

The deductibility of contributions depends on your modified adjusted gross income (MAGI) and filing status. If you’re covered by a workplace retirement plan, deductions phase out at $77,000 for single filers and $123,000 for married couples filing jointly. If you’re not covered but your spouse is, the phase-out starts at $230,000. Contributions grow tax-deferred until withdrawal, when they are taxed as ordinary income.

A Traditional IRA offers flexibility in investment choices, allowing you to allocate funds across stocks, bonds, mutual funds, and ETFs. However, required minimum distributions (RMDs) begin at age 73, and failing to take them results in a 25% penalty on the amount that should have been withdrawn.

Employer-Sponsored Account Enhancements

If you’ve maxed out your Roth IRA, your workplace retirement plan could provide additional opportunities to grow your savings. Many employers offer 401(k), 403(b), or 457(b) plans, which allow for significantly higher contribution limits than IRAs. For 2024, employees can contribute up to $23,000, with an extra $7,500 catch-up contribution for those 50 and older. Employer matching contributions further increase the value of these plans.

Some workplaces offer a Roth 401(k) option, which functions like a Roth IRA but without income restrictions. Contributions are made with after-tax dollars, and qualified withdrawals in retirement are tax-free. Unlike a Roth IRA, Roth 401(k)s are subject to RMDs starting at age 73, though rolling the balance into a Roth IRA upon retirement can eliminate this requirement.

For high earners looking to save more, after-tax contributions to a 401(k) can be a useful strategy. Some plans permit contributions beyond the $23,000 limit, up to a total of $69,000 (or $76,500 for those 50 and older) when factoring in employer contributions and after-tax additions. These after-tax funds can later be converted to a Roth IRA through the “mega backdoor Roth” strategy, allowing for additional tax-free growth.

Taxable Brokerage Choices

When tax-advantaged retirement accounts have reached their limits, a taxable brokerage account offers flexibility and access to a broader range of investments. Unlike retirement plans, these accounts have no contribution limits or early withdrawal penalties, allowing investors to buy and sell assets as needed.

One advantage is the ability to take advantage of long-term capital gains tax rates, which are typically lower than ordinary income tax rates. Assets held for more than a year are taxed at 0%, 15%, or 20%, depending on taxable income. In contrast, short-term gains—profits from investments sold within a year—are taxed at ordinary income rates, which can reach as high as 37% in 2024.

Dividend-paying stocks and exchange-traded funds (ETFs) can also enhance a portfolio. Qualified dividends from U.S. corporations and certain foreign companies receive favorable tax treatment, being taxed at the same rates as long-term capital gains. Meanwhile, non-qualified dividends are taxed as ordinary income.

Tax-loss harvesting can further improve after-tax returns. By selling investments at a loss, investors can offset capital gains elsewhere in their portfolio, reducing taxable income. Losses exceeding gains can offset up to $3,000 of ordinary income per year, with any excess carrying forward indefinitely.

Health Savings Account Strategies

A Health Savings Account (HSA) offers unique tax benefits for individuals with high-deductible health plans (HDHPs). Contributions are made pre-tax, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.

For 2024, the IRS sets HSA contribution limits at $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those 55 and older. Unlike Flexible Spending Accounts (FSAs), unused HSA funds roll over indefinitely, allowing balances to grow over time. Many HSAs offer investment options, including mutual funds, ETFs, and individual stocks.

One strategy involves using an HSA as a supplemental retirement account by paying current medical expenses out of pocket while letting the HSA balance grow. Since there is no time limit for reimbursing past medical expenses, careful record-keeping allows withdrawals years later, effectively converting the HSA into a tax-free retirement fund.

Education Funding Vehicles

For those looking to invest beyond retirement, education savings accounts can be a tax-efficient way to grow wealth while preparing for future tuition costs.

529 Plans allow contributions to grow tax-free when used for qualified education expenses. While contributions are not federally tax-deductible, many states offer deductions or credits for residents who contribute to their state-sponsored plan. Funds can be used for tuition, fees, books, and even K-12 private school expenses up to $10,000 per year. A unique feature of 529 plans is the ability to change beneficiaries, making them flexible if the original recipient doesn’t need the funds. Recent changes also allow unused funds—up to $35,000—to be rolled into a Roth IRA for the beneficiary after 15 years.

Coverdell Education Savings Accounts (ESAs) offer another tax-advantaged way to save for education, though with stricter contribution limits. Annual contributions are capped at $2,000 per beneficiary, and eligibility phases out for higher-income earners. Unlike 529 plans, ESAs allow investments in a broader range of assets, including individual stocks and bonds. Funds must be used by the beneficiary’s 30th birthday, or they will be subject to taxes and penalties.

Real Estate Investment Paths

Real estate offers another avenue for growing wealth, providing both income potential and asset appreciation.

Rental properties allow investors to earn monthly income while building equity over time. Mortgage interest, property taxes, maintenance costs, and depreciation can be deducted to lower taxable income. However, managing properties requires time and effort, from screening tenants to handling repairs. Investors who meet the IRS definition of a real estate professional can deduct rental losses against ordinary income. Hiring a property manager can alleviate operational burdens while still providing financial returns.

Real Estate Investment Trusts (REITs) offer an alternative for those who want exposure to real estate without the responsibilities of direct ownership. Publicly traded REITs function like stocks, providing liquidity while distributing at least 90% of taxable income to shareholders as dividends. These dividends are often taxed at higher ordinary income rates, but some REITs qualify for the 20% pass-through deduction under the Tax Cuts and Jobs Act. Private REITs and real estate crowdfunding platforms provide additional options, though they often require higher minimum investments and come with liquidity constraints.