Just because you’ve hit the max on your IRA or 401(k) doesn’t mean you should stop saving.
Having money in a taxable brokerage account gives you more options.
Funding an HSA allows you to enjoy tax breaks while saving for future healthcare needs.
Many people struggle to find money for retirement savings, period. So if you’re in a position where you’ve maxed out contributions to your IRA or 401(k) but still have money you’re able to save, you’re in a great spot.
The good news is that you have different options for long-term savings outside of an IRA or 401(k) plan. Here are a few to look at.
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With a taxable brokerage account, you won’t get pre-tax contributions or tax-deferred gains as you do with a traditional retirement plan. But what you gain is flexibility.
Traditional IRAs and 401(k)s penalize you for taking withdrawals before turning 59 1/2. They also force you to start tapping your savings once you’re old enough for required minimum distributions to start.
With a taxable brokerage account, you may have an easier time transitioning into retirement if you end up leaving the workforce sooner than planned, since there’s no such thing as an early withdrawal penalty. And having some savings in one of these accounts could help you minimize future taxes by avoiding forced withdrawals.
If you have health insurance that’s compatible with a health savings account (HSA), it pays to contribute. HSAs let you set aside funds for healthcare expenses. And they offer more tax benefits than any other account.
With an HSA:
It’s generally very helpful to have funds in one of these accounts during retirement, when your healthcare costs could climb. Plus, once you turn 65, there’s no penalty for taking HSA withdrawals for non-medical reasons. In that case, you’re simply taxed on withdrawals, which puts your HSA in the same category as a traditional IRA or 401(k).
If you’re maxing out your IRA or 401(k) and still have money to spare, you can work on getting rid of debt, even if yours is manageable. Focus on paying off credit cards first, and then move on to secured loans, like your car loan or mortgage.
That said, make sure the interest rate on your loan warrants an early payoff. If you’re paying 6% or 7% on an auto loan, that’s probably worth trying to get rid of ahead of schedule. But if you signed your mortgage five years ago and locked in a 3% rate, you may be better off carrying that home loan and investing your money in a taxable brokerage account instead.
Having money to save beyond what an IRA or 401(k) allows for is a great problem to have. These options could help you deploy that extra cash in a way that helps you financially in the future.
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