What to Do With Extra Cash After You've Maxed Out Your Retirement Accounts
Key Points
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.
- The $23,760 Social Security bonus most retirees completely overlook ›
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.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Image source: Getty Images.
1. Invest in a taxable brokerage account
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.
2. Fund an HSA
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:
- Contributions are made on a pre-tax basis.
- Investment gains are tax-free.
- Withdrawals are tax-free when used for qualifying medical expenses.
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).
3. Chip away at your debt
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.
The $23,760 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.
View the "Social Security secrets" »
The Motley Fool has a disclosure policy.
Recommended Articles
