What to Do After Maxing Out Your 401k and IRA

Maximizing contributions to your 401(k) and Individual Retirement Account (IRA) is a significant financial achievement. This milestone indicates a strong commitment to your financial future, positioning you to explore additional avenues for wealth accumulation. With your primary tax-advantaged retirement vehicles fully utilized, you can now strategically invest further savings for continued growth and optimized tax efficiency.

Expanding Tax-Advantaged Opportunities

Beyond 401(k)s and IRAs, other specialized accounts offer distinct tax advantages for specific financial goals. Health Savings Accounts (HSAs) and 529 college savings plans can enhance your financial strategy by providing unique tax benefits for future needs.

Health Savings Accounts (HSAs) stand out for their triple tax advantage: contributions are tax-deductible, funds grow tax-free, and withdrawals are tax-free for qualified medical expenses. Eligibility requires coverage under a high-deductible health plan (HDHP). For 2025, this means a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. Maximum out-of-pocket amounts cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

In 2025, individuals with self-only HDHP coverage can contribute up to $4,300, while those with family coverage can contribute up to $8,550. An additional $1,000 catch-up contribution is allowed for individuals aged 55 and older. Unused HSA funds roll over year to year, allowing the account to function as a retirement savings vehicle. After age 65, withdrawals for non-medical expenses are taxed as ordinary income but without penalty.

For educational aspirations, 529 college savings plans offer a tax-advantaged solution. These plans provide tax-free growth and withdrawals for qualified educational expenses, including tuition, fees, books, supplies, equipment, and room and board. While no federal tax deduction exists for 529 contributions, many states offer residents a deduction or credit. A special provision allows for accelerated gifting, where up to five years’ worth of gifts can be made in a single year without federal gift tax. For 2025, this can be $95,000 for individuals or $190,000 for married couples, potentially reducing one’s taxable estate.

Utilizing Taxable Investment Accounts

After fully funding tax-advantaged accounts like 401(k)s, IRAs, HSAs, and 529 plans, a standard brokerage account becomes a primary option for additional investment capital. These accounts have no contribution limits, offering unrestricted flexibility for investment. They are suitable for accumulating wealth beyond specific retirement or educational goals, providing a versatile platform for diverse financial objectives.

Taxable brokerage accounts offer a wide array of investment options, including individual stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This selection allows investors to construct portfolios tailored to their risk tolerance and investment horizons. Unlike specialized accounts, funds in a brokerage account are highly liquid, meaning assets can be bought and sold with ease, providing access to capital when needed.

Profits from the sale of investments in taxable brokerage accounts are subject to capital gains tax. Short-term capital gains, derived from assets held for one year or less, are taxed at ordinary income tax rates, which can range from 10% to 37% for the 2025 tax year. Long-term capital gains, from assets held for more than one year, receive more favorable tax treatment, with rates of 0%, 15%, or 20% in 2025, depending on your taxable income.

Dividends received from investments in these accounts are also subject to taxation. Qualified dividends, which meet specific IRS criteria, are taxed at the same preferential rates as long-term capital gains. Nonqualified or ordinary dividends are taxed at your regular income tax rate. Tax-loss harvesting can be employed in taxable accounts, allowing investors to sell investments at a loss to offset capital gains and, to a limited extent, ordinary income, potentially reducing tax liability.

When selecting a brokerage firm, consider fees like trading commissions or account maintenance charges, which impact overall returns. The range of investment options and quality of research tools are also important. Brokerage accounts can be individual or joint, offering flexibility for personal circumstances.

Considering Alternative Investment Paths

After maximizing traditional investment avenues, exploring alternative paths offers further opportunities for wealth expansion and diversification. Real estate investment and strategically paying down a mortgage present distinct approaches to building assets and securing financial stability.

Direct ownership of rental properties provides potential income through rent and property value appreciation. This path involves responsibilities like property management, maintenance, and tenant relations. Investors must account for potential vacancies, property taxes, insurance, and repair costs, which can impact profitability.

Real Estate Investment Trusts (REITs) offer a liquid and accessible way to gain exposure to real estate without the direct responsibilities of property ownership. REITs are companies that own, operate, or finance income-producing real estate across various sectors like residential, commercial, and industrial. Investors purchase shares in these companies, which are often publicly traded on stock exchanges.

REITs are legally required to distribute at least 90% of their taxable income to shareholders annually, which allows them to avoid corporate income tax. This pass-through structure means the tax burden shifts to the individual investor. Dividends received from REITs are taxed as ordinary income, rather than at the lower qualified dividend rates. However, through the end of 2025, a 20% deduction on qualified business income (Section 199A) may apply to REIT dividends, which can effectively reduce the federal tax rate on this income.

Accelerating mortgage payments is a strategic financial move. Paying down a mortgage faster earns a “guaranteed return” equal to the loan’s interest rate. This strategy reduces total interest paid and builds home equity more rapidly. Benefits include reduced debt, increased financial flexibility, and potentially lower fixed expenses, especially as retirement approaches.

For highly affluent investors, specialized strategies like private placements or angel investing exist. These opportunities involve investing directly in private companies or funds not available to the general public. They carry higher risk and illiquidity, making them difficult to sell quickly. Participation is limited to “accredited investors,” defined by the SEC as individuals with a net worth exceeding $1 million (excluding primary residence) or an annual income exceeding $200,000 ($300,000 for married couples) for the past two years.