Where to Put Money After Maxing Out 401k and IRA?

After diligently maximizing contributions to primary tax-advantaged retirement accounts like 401(k)s and IRAs, individuals often find themselves in a strong financial position. Reaching this milestone opens new opportunities for further wealth accumulation and strategic financial planning. There are several other valuable avenues available for surplus funds, each with distinct characteristics and potential benefits for long-term growth and specific financial goals.

Health Savings Accounts

A Health Savings Account (HSA) functions as a tax-advantaged savings account specifically designated for 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 maximum annual out-of-pocket expenses for an HDHP in 2025 cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

HSAs offer a unique “triple tax advantage”. Contributions made to an HSA are tax-deductible, or pre-tax if made through payroll deductions. The funds within the account grow tax-free through investments, and withdrawals are also tax-free when used for qualified medical expenses. For 2025, individuals can contribute up to $4,300 for self-only HDHP coverage, or $8,550 for family coverage, with an additional $1,000 catch-up contribution for those age 55 and older. Unused funds in an HSA roll over from year to year and can be invested, allowing the account to serve as a long-term savings vehicle for future healthcare costs, particularly in retirement.

General Investment Accounts

General investment accounts, often referred to as taxable brokerage accounts, operate differently from tax-advantaged retirement accounts. These accounts do not offer the same upfront tax deductions for contributions as 401(k)s or IRAs, as contributions are typically made with after-tax money. Funds held in these accounts are subject to taxation on investment gains and income as they are realized or received. This includes capital gains from the sale of investments and dividends paid out by companies.

Capital gains are generally categorized as either short-term or long-term, with different tax treatments. Short-term capital gains, realized from assets held for one year or less, are typically taxed at an individual’s ordinary income tax rate. Long-term capital gains, from assets held for more than one year, usually receive preferential tax rates. Dividends are also taxed, with qualified dividends often receiving the same preferential rates as long-term capital gains, while non-qualified dividends are taxed as ordinary income.

• Individual stocks represent ownership shares in a specific company.
• Bonds are debt instruments issued by governments or corporations, where the investor essentially loans money in exchange for regular interest payments and the return of the principal at maturity.
• Mutual funds are professionally managed portfolios that pool money from many investors to buy a diversified collection of stocks, bonds, or other assets.
• Exchange-Traded Funds (ETFs) are similar to mutual funds in that they also hold a basket of securities, but they trade like individual stocks on exchanges throughout the day. ETFs can track specific market indexes or be actively managed, providing a way to gain exposure to various markets or sectors.

Real Estate Holdings

Real estate can be a substantial avenue for investing surplus funds, offering a distinct asset class for wealth accumulation. Direct real estate ownership involves purchasing physical properties, such as residential rental homes or commercial buildings. The goal of direct ownership is to generate income through rent payments and potential appreciation in the property’s value over time. Direct real estate investments typically require significant upfront capital for purchase and ongoing costs like property taxes, insurance, and maintenance. Active management responsibilities, such as landlord duties, are also often part of direct property ownership.

An alternative approach to real estate investment is through indirect means, primarily via Real Estate Investment Trusts (REITs). REITs are companies that own, operate, or finance income-producing real estate across various property sectors. These companies trade like stocks on major exchanges, providing investors with a liquid way to gain exposure to real estate without the need for direct property ownership and its associated management responsibilities. REITs typically generate income by leasing space and collecting rent on their properties, which is then paid out to shareholders in the form of dividends. To maintain their tax-advantaged status, REITs are generally required to distribute at least 90% of their taxable income to shareholders as dividends.

Education Savings

Education savings plans provide a structured way to set aside funds for future educational expenses, with 529 plans being a prominent option. A 529 plan is a tax-advantaged investment vehicle specifically designed to encourage saving for qualified education expenses. Contributions to these plans are typically made with after-tax money, meaning they are not federally tax-deductible. However, the earnings within the account grow tax-deferred, and qualified withdrawals used for eligible education expenses are tax-free at the federal level. Many states also offer tax deductions or credits for contributions to their respective 529 plans.

Qualified education expenses include a broad range of costs associated with enrollment or attendance at an eligible educational institution. These expenses typically cover tuition and fees, room and board, books, and required supplies or equipment. Since 2018, qualified expenses also include up to $10,000 per year in tuition for elementary or secondary public, private, or religious schools. As of July 4, 2025, additional K-12 expenses, such as curriculum materials, tutoring, and testing fees, are also considered qualified. The account holder, often a parent or grandparent, usually retains control over the funds, and the beneficiary (the student) can often be changed if circumstances require it.

Annuity Options

Annuities represent a contract established between an individual and an insurance company. Under this agreement, the individual makes a payment or a series of payments, and in return, the insurance company agrees to provide regular disbursements, either immediately or at a future date. Annuities involve two primary phases: the accumulation phase and the payout phase. During the accumulation phase, the money contributed to the annuity grows, typically on a tax-deferred basis, meaning earnings are not taxed until withdrawn. The payout phase begins when income payments from the annuity commence.

Various types of annuities exist, each with a distinct approach to how returns are generated and paid. Fixed annuities offer a guaranteed interest rate on contributions and provide predictable income payments. Variable annuities allow the investor to allocate funds among various investment sub-accounts, with returns fluctuating based on their performance. Indexed annuities link their returns to the performance of a specific market index, such as the S&P 500, often with mechanisms that limit both upside potential and downside risk. Withdrawals from the earnings portion of an annuity are typically taxed as ordinary income.