Where to Invest After Maxing Out 401k and Roth IRA?

For individuals who have diligently maximized contributions to tax-advantaged retirement accounts like 401(k)s and Roth IRAs, the question of where to invest next arises. While these accounts form a strong foundation, a comprehensive investment strategy often extends beyond them. Exploring additional avenues allows for continued wealth accumulation, diversification, and the pursuit of various life goals, each with distinct tax implications and investment characteristics.

Understanding Taxable Brokerage Accounts

After fully funding tax-advantaged retirement vehicles, a taxable brokerage account becomes a primary option for continued investing. These general investment accounts do not offer the immediate tax deductions or tax-free growth found in 401(k)s or Roth IRAs. However, they provide significant flexibility and liquidity, as there are no contribution limits or restrictions on when funds can be withdrawn.

Within a taxable brokerage account, investors can hold a wide array of assets, including individual stocks, bonds, mutual funds, and Exchange Traded Funds (ETFs). This broad choice allows for tailored portfolio construction that aligns with individual risk tolerance and financial objectives. It is particularly appealing for those seeking greater control over their investment selections.

Profits generated from investments in these accounts are subject to capital gains tax and taxes on dividends. Short-term capital gains, from assets held for one year or less, are taxed at ordinary income tax rates (10% to 37% for 2025). Long-term capital gains, from assets held for more than one year, receive more favorable tax treatment, with rates of 0%, 15%, or 20% for most taxpayers in 2025, depending on income levels. A 3.8% Net Investment Income Tax (NIIT) may apply to higher-income individuals.

Dividends received are also subject to taxation. Qualified dividends are generally taxed at the lower long-term capital gains rates, while non-qualified dividends are taxed as ordinary income. Strategies such as tax-loss harvesting can offset capital gains with capital losses, potentially reducing current tax liabilities. Investors can deduct up to $3,000 of net capital losses against ordinary income annually, carrying forward any excess losses to future years. Holding investments for longer than one year allows gains to qualify for the lower long-term capital gains rates. Individuals can open a taxable brokerage account through various financial institutions, including online brokers, traditional brokerage firms, or wealth management advisors.

Utilizing Health Savings Accounts

Health Savings Accounts (HSAs) offer a triple tax advantage. These accounts help individuals save for current and future healthcare expenses. To be eligible for an HSA, an individual must be enrolled in a High Deductible Health Plan (HDHP).

For 2025, an HDHP must have a minimum annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage. The annual out-of-pocket maximums cannot exceed $8,300 for self-only coverage or $16,600 for family coverage. Contributions to an HSA are tax-deductible, reducing taxable income in the year they are made.

Funds within an HSA grow tax-free, and withdrawals are also tax-free when used for qualified medical expenses. Qualified medical expenses include deductibles, co-insurance, prescriptions, dental care, and vision care. For 2025, the maximum contribution limit for an HSA is $4,300 for self-only coverage and $8,550 for family coverage. Individuals age 55 and older can contribute an additional $1,000 annually as a catch-up contribution.

HSAs can function as an investment vehicle. Many HSA providers offer investment options similar to those found in retirement accounts, allowing account holders to invest contributions once a certain cash threshold is met. This enables funds to grow over time, potentially accumulating a substantial sum for future medical needs or retirement. After age 65, HSA funds can be withdrawn for any purpose without penalty, though withdrawals for non-medical expenses are then taxed as ordinary income, similar to a traditional IRA. Unused HSA funds roll over from year to year, never expiring.

Investing for Specific Life Goals

Beyond general wealth accumulation and retirement, individuals may have specific life goals that require dedicated investment strategies. Education savings is a common objective, and 529 plans are designed to facilitate this. These plans offer a tax-advantaged way to save for qualified education expenses.

The primary tax benefit of a 529 plan is that earnings grow tax-free, and withdrawals are also tax-free when used for qualified education expenses. Qualified expenses typically include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Room and board expenses are also qualified if the beneficiary is enrolled at least half-time.

Since 2018, qualified education expenses also include up to $10,000 per year in tuition for K-12 public, private, or religious schools. Starting July 4, 2025, additional K-12 expenses such as curriculum materials, books, tutoring, online courses, and testing fees are also considered qualified. The flexibility to change the beneficiary to another eligible family member is a notable aspect of 529 plans.

The SECURE Act 2.0, enacted in 2022, introduced a provision allowing for the rollover of unused 529 funds to a Roth IRA under certain conditions, effective January 1, 2024. This offers a solution for accounts with leftover funds not needed for education. To qualify, the 529 account must have been open for at least 15 years, and contributions made within the last five years are not eligible for rollover. The lifetime maximum amount that can be rolled over to a Roth IRA is $35,000 per beneficiary. Annual rollovers are limited to the Roth IRA contribution limit for that year, which is $7,000 for 2025, or $8,000 for those age 50 or older.

Exploring Real Estate Opportunities

Real estate represents an alternative asset class for investment once traditional financial accounts are fully utilized. It can be an avenue for wealth building, distinct from market-based securities. Investing in real estate offers potential for income generation, capital appreciation, and certain tax advantages.

One common approach is direct ownership of rental properties, which can include residential homes, multi-family dwellings, or commercial spaces. Property owners can generate income through rent payments and benefit from the appreciation in the property’s value over time. Direct ownership involves responsibilities such as property management, maintenance, and tenant relations, which can be time-intensive.

Indirect ownership provides another pathway into real estate, often through Real Estate Investment Trusts (REITs). REITs are companies that own, operate, or finance income-producing real estate across various sectors. These companies trade on major stock exchanges, similar to other stocks, offering a way to invest in real estate without direct management responsibilities.

Real estate investments come with specific tax implications. Rental income is generally taxable, but property owners can deduct various expenses, including mortgage interest, property taxes, insurance, and operating costs. Depreciation allows property owners to deduct a portion of the property’s value each year to account for wear and tear.

For tax purposes, residential rental properties are typically depreciated over 27.5 years using the straight-line method, while commercial properties are depreciated over 39 years. The land component of real estate is not depreciable. Property taxes paid are deductible, though subject to the State and Local Tax (SALT) deduction cap, which is $40,000 for single filers and married couples filing jointly in 2025. Real estate investments are generally considered long-term endeavors due to their illiquid nature compared to stocks or bonds. Selling a property can take time, and transaction costs can be substantial.