Where to Invest After Maxing Out Your 401k?

Maximizing contributions to a 401(k) plan is a significant financial achievement, demonstrating a strong commitment to future financial security. This milestone opens additional opportunities to invest and grow assets through various other vehicles, each offering distinct advantages. Exploring these options helps individuals continue to build financial strength beyond traditional workplace plans.

Individual Retirement Accounts

Individual Retirement Accounts (IRAs) are a common progression for tax-advantaged investing after fully funding a 401(k). These accounts come in two primary forms: Traditional IRAs and Roth IRAs, each with unique tax treatments and eligibility criteria. Understanding their differences is important for informed decisions.

A Traditional IRA typically allows for pre-tax contributions, which may be tax-deductible depending on income and whether one is covered by a retirement plan at work. Investments within a Traditional IRA grow on a tax-deferred basis, meaning taxes are not paid on earnings until withdrawals are made. Distributions are generally taxed as ordinary income upon withdrawal.

In contrast, a Roth IRA is funded with after-tax contributions. Qualified withdrawals in retirement, including both contributions and earnings, are entirely tax-free. This tax-free growth and withdrawal feature makes the Roth IRA appealing for those who anticipate being in a higher tax bracket during retirement. Eligibility for contributing to a Roth IRA is subject to Modified Adjusted Gross Income (MAGI) limits, which vary annually and based on filing status.

The annual contribution limits for both Traditional and Roth IRAs are set by the Internal Revenue Service and are subject to change. For example, in 2025, individuals under age 50 could contribute up to $7,000, while those aged 50 and over could contribute an additional $1,000 as a catch-up contribution. For individuals whose income exceeds the direct Roth IRA contribution limits, a “backdoor Roth IRA” strategy may be available. This involves making non-deductible contributions to a Traditional IRA and then converting those funds to a Roth IRA, allowing high-income earners to indirectly access the benefits of a Roth account.

Health Savings Accounts

Health Savings Accounts (HSAs) offer an investment opportunity for eligible individuals, providing a triple-tax advantage that can significantly enhance long-term savings. To be eligible for an HSA, an individual must be enrolled in a high-deductible health plan (HDHP) and not be enrolled in Medicare or claimed as a dependent on someone else’s tax return.

The “triple-tax advantage” of an HSA refers to these benefits: Contributions are tax-deductible, or made with pre-tax dollars if through payroll deductions. Funds grow tax-free through investment. Qualified withdrawals for eligible medical expenses are also entirely tax-free. This combination makes HSAs a powerful tool for both current healthcare costs and future financial planning.

Annual contribution limits for HSAs are determined by the IRS and vary based on whether an individual has self-only or family HDHP coverage. For example, in 2025, individuals with self-only coverage could contribute up to $4,300, while those with family coverage could contribute up to $8,550. Additionally, individuals aged 55 and over are permitted to make an extra catch-up contribution of $1,100 annually, further boosting their savings potential.

While primarily intended for healthcare expenses, an HSA can function as an investment vehicle. Once a certain balance is reached, many HSA providers allow account holders to invest a portion of their funds in various assets, such as mutual funds. If funds are not used for medical expenses, after age 65, withdrawals for non-medical purposes are taxed as ordinary income, similar to a Traditional IRA. However, withdrawals for qualified medical expenses remain tax-free at any age, making the HSA a flexible account for both health and retirement planning.

Taxable Brokerage Accounts

After maximizing contributions to tax-advantaged accounts like 401(k)s, IRAs, and HSAs, taxable brokerage accounts become a flexible option for continued investment. These accounts differ from retirement or health savings vehicles because they do not have annual contribution limits. Contributions are made with after-tax dollars.

The primary distinction of these accounts lies in their tax implications, as investment gains are generally taxable in the year they are realized. Dividends received from stocks or mutual funds are typically taxed as income when paid. Interest earned from bonds is also usually taxable when received. When an investment is sold for a profit, this gain is subject to capital gains tax.

The tax rate on capital gains depends on how long the investment was held. Short-term capital gains, from selling an asset held for one year or less, are taxed at an individual’s ordinary income tax rate. Long-term capital gains, from assets held for more than one year, are generally taxed at more favorable rates, often 0%, 15%, or 20%, depending on the investor’s taxable income. This distinction encourages a longer-term investment horizon to benefit from lower tax rates.

Taxable brokerage accounts offer a wide array of investment options, including individual stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This broad selection allows investors to construct diversified portfolios tailored to their specific financial goals and risk tolerance. A significant advantage of these accounts is their liquidity and flexibility; there are generally no age-based withdrawal penalties, unlike retirement accounts, providing easier access to funds if needed before retirement age.

Diversifying Beyond Common Investment Vehicles

Once traditional tax-advantaged accounts and taxable brokerage options are fully utilized, individuals may explore alternative investment avenues to diversify their portfolios. These options can offer different risk and return profiles. One such avenue involves real estate investing, which can provide both income potential and appreciation over time.

Direct real estate ownership, such as purchasing rental properties, allows investors to generate passive income from rent payments while potentially benefiting from property value increases. This approach involves active management, including tenant relations and property maintenance, or hiring a property manager.

Alternatively, Real Estate Investment Trusts (REITs) offer a way to invest in real estate without direct property ownership. REITs are companies that own, operate, or finance income-producing real estate across various sectors, like apartments, shopping centers, or data centers, and they often trade on major stock exchanges. They are generally required to distribute a significant portion of their taxable income to shareholders as dividends, providing a regular income stream.

Beyond real estate, some individuals might consider investing in a small business or a side venture. This could involve providing capital to a startup or an existing small enterprise, potentially gaining an equity stake or a share of profits. Such investments carry higher risks but can offer substantial returns if the business is successful. This path requires thorough due diligence and an understanding of the business’s operational and financial health.

Another consideration for long-term financial planning is annuities, which are contracts with an insurance company designed to provide a steady stream of income, typically during retirement. While not an investment in the traditional sense of growing capital through market participation, annuities serve as an insurance product that can offer guaranteed income payments for a specified period or for life. They can be complex, with various types and features, so understanding their structure, fees, and how they align with one’s retirement income needs is important before committing funds.