Where to Invest After 401k and Roth IRA?

Having diligently maximized contributions to a 401(k) and Roth IRA demonstrates a strong commitment to long-term financial well-being. These tax-advantaged retirement accounts are foundational elements of a comprehensive financial plan, offering significant benefits for wealth accumulation. However, once these primary vehicles are fully utilized, the question naturally arises about where to direct additional investment efforts. This article aims to guide individuals through the next steps in their investment journey, exploring various avenues for continued growth and diversification. Expanding investment horizons beyond traditional retirement accounts can help achieve a broader range of financial objectives, from specific short-term goals to further enhancing long-term financial security.

Taxable Brokerage Accounts

After fully funding tax-advantaged retirement accounts, a taxable brokerage account often becomes the next logical step for many investors. These accounts distinguish themselves from 401(k)s and Roth IRAs by their lack of contribution limits, allowing for unlimited investment of after-tax dollars. This flexibility means investors can contribute as much as they wish, making them suitable for significant wealth accumulation beyond retirement savings.

A key characteristic of taxable brokerage accounts is the direct taxation of investment gains. Unlike tax-deferred or tax-free retirement accounts, earnings such as dividends, interest, and capital gains are subject to taxes in the year they are realized or received. This necessitates careful consideration of tax implications when managing investments within these accounts. Investors typically hold a diverse range of assets in these accounts, including individual stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

When an investment held in a taxable brokerage account is sold for a profit, it generates a capital gain, which is then subject to capital gains tax. The tax rate applied depends on how long the asset was held before being sold. Profits from assets held for one year or less are considered short-term capital gains and are taxed at ordinary income tax rates, which can range from 10% to 37% for the 2025 tax year. This means short-term gains are taxed similarly to wages or salary.

Conversely, profits from assets held for more than one year are classified as long-term capital gains, which generally benefit from lower tax rates. For the 2025 tax year, long-term capital gains rates are 0%, 15%, or 20%, depending on the investor’s taxable income and filing status.

Dividends received from investments in a taxable brokerage account are also subject to taxation. Dividends are generally categorized as either “qualified” or “nonqualified” (ordinary). Qualified dividends are typically taxed at the more favorable long-term capital gains rates, offering a tax advantage compared to ordinary income. To be considered qualified, dividends must meet specific IRS criteria, including holding period requirements.

Nonqualified or ordinary dividends are taxed at the investor’s regular marginal income tax rate, similar to short-term capital gains. Interest income generated from bonds or other interest-bearing securities within a taxable brokerage account is generally taxed at ordinary income tax rates. The ability to withdraw funds from a taxable brokerage account at any time without age-based restrictions or penalties is a significant advantage, offering greater liquidity and access to funds for various financial goals before retirement age. This contrasts with retirement accounts, which typically impose penalties for withdrawals before age 59½.

Health Savings Accounts

Health Savings Accounts (HSAs) offer a unique blend of healthcare savings and investment potential, making them a compelling option after maximizing retirement accounts. An HSA is a tax-advantaged savings account specifically designed for individuals enrolled in a High-Deductible Health Plan (HDHP). To be eligible, an individual must be covered by an HDHP, have no other health coverage, and not be enrolled in Medicare.

HSAs offer a “triple tax advantage.” First, contributions to an HSA are tax-deductible, reducing the individual’s taxable income in the year they are made. For 2025, the maximum contribution for an eligible individual is $4,150, and $8,300 for families, with an additional $1,000 catch-up contribution for those age 55 and over.

Second, the funds within an HSA grow tax-free, meaning earnings are not taxed while held in the account. This allows for significant compounding over time, similar to a Roth IRA. Many HSA providers offer investment options, allowing account holders to invest their balances in various funds, stocks, or bonds. This transforms the HSA into a powerful long-term growth vehicle.

Third, qualified withdrawals for eligible medical expenses are also tax-free. This applies to a broad range of medical, dental, and vision expenses, as defined by IRS guidelines. If funds are withdrawn for non-qualified expenses before age 65, they are subject to ordinary income tax and a 20% penalty. After age 65, withdrawals for non-qualified expenses are taxed as ordinary income but without the penalty, effectively allowing the HSA to function like a traditional IRA in retirement. This dual nature makes the HSA a flexible financial tool, serving as both a healthcare savings account and a supplemental retirement investment vehicle.

529 Plans for Education Savings

For those looking to save for future educational expenses, 529 plans offer a specialized tax-advantaged investment vehicle. These state-sponsored plans are designed to encourage saving for qualified education costs. Contributions to a 529 plan are typically made with after-tax dollars and are not federally tax-deductible. However, many states offer a state income tax deduction or credit for contributions, which can provide an immediate tax benefit depending on residency.

A primary advantage of 529 plans is the tax-deferred growth of investments within the account. Earnings accumulate without being subject to annual taxation. Furthermore, qualified withdrawals from a 529 plan are entirely tax-free at the federal level. Qualified expenses generally include tuition, fees, books, supplies, equipment, and room and board for students enrolled at least half-time at an eligible educational institution. The definition of qualified expenses has expanded to include up to $10,000 annually for K-12 tuition per beneficiary and up to $10,000 in student loan repayments.

There are two main types of 529 plans: prepaid tuition plans and education savings plans. Prepaid tuition plans allow purchasers to lock in future tuition rates at eligible in-state public colleges. Education savings plans, which are more common and versatile, operate like investment accounts, allowing the account owner to invest contributions in various mutual funds or other investment portfolios. These plans are owned by an adult who designates a beneficiary to use the funds. The account owner retains control over the funds and can change the beneficiary to another eligible family member if needed.