Maxed Out Your 401(k)? Here's Where to Put the Rest of Your Money

Maxing out a 401(k) is an amazing accomplishment. In 2023, you can contribute as much as $22,500 to a 401(k), plus an additional $7,500 if you are age 50 or over and eligible for catch-up contributions. So if you've maxed out this account, you are well on your way to a secure future. The big question, though, is what should you do after you've contributed all you can to your 401(k).

If you still have more money to invest, here are your other options. It's also important to know that you can consider these accounts even if you haven't completely maxed out your 401(k) but have contributed enough to it to earn your full employer match.

You could contribute to another tax-advantaged retirement account

Putting more money away for retirement is a possible option if you've maxed out your 401(k). You could use either a traditional IRA or a Roth IRA at a brokerage firm of your choosing.

Traditional IRAs allow you to make contributions with pre-tax dollars just like in a traditional 401(k). You'll save on your taxes in the year you contribute. Roth IRAs, on the other hand, provide no upfront tax savings when you make your contribution but they allow you to take tax-free withdrawals as a senior.

Be aware of the income limits for taking advantage of these accounts, though. Since you obviously have a workplace retirement plan if you've maxed out your 401(k):

• Your ability to deduct IRA contributions begins to phase out once you have a modified adjusted gross income (MAGI) of $73,000 as a single tax filer or $116,000 as a married joint filer.
• Once your MAGI exceeds $83,000 as a single filer or $136,000 as a married joint filer, you can't make any deductible contributions to a traditional IRA at all.

These are the 2023 limits.

Likewise, eligibility for Roth contributions begins to phase out with a MAGI of $204,000 for married joint filers or $129,000 for single filers, and you cannot contribute at all to a Roth IRA if your income exceeds $214,000 or $144,000, depending whether you're a married or single filer.

If you are below these income thresholds and you think you may want to save even more for retirement beyond what you put into your 401(k), you can open your traditional or Roth IRA just by completing a simple online application with the broker of your choosing. Be sure to pick a brokerage firm that offers low or no fees and provides access to a wide variety of investments.

You could put money into a taxable brokerage account

Retirement accounts, including 401(k)s traditional and Roth IRAs, come with a lot of restrictions. You cannot contribute more than the allowable amount each year, and if you take money out before age 59½, you get hit with a 10% tax penalty.

If you've already maxed out a 401(k), you may not want to lock up more money until your retirement years -- even if you do get that tax break for doing so. Instead, you may want to put some of your funds into a taxable brokerage account.

These accounts work differently because not only do you not get to make tax-free contributions or take tax-free withdrawals, but you also can't always grow your account balance tax-free. If you sell an asset and make a profit in a taxable brokerage account, you'll pay either short-term or long-term capital gains taxes, depending on whether you owned the investment for at least a year.

While the tax rules make these accounts less favorable and more complicated, a taxable brokerage account could be the right place for extra money after maxing out a 401(k) if you feel you've already saved enough for retirement and want to grow wealth that you can access whenever you need it.

You could look into other investments

Finally, you could consider doing something else entirely different with your money after you've maxed out your 401(k) besides putting it into another brokerage account that gives you exposure to the stock market.

You could, for example, opt to put more into a high-yield savings account if you want more liquid (easily accessible) cash. Or you could buy certificates of deposit (CDs), which are safe investments that require you to leave your money invested for a period of time (usually several months to several years) in exchange for a guaranteed rate of return that's usually higher than what a savings account offers.

You could even invest in a business, buy investment properties, or buy alternative assets such as cryptocurrency if you feel like you're on track for retirement and want to branch out and diversify a little more.

The important thing is, no matter what you do, you'll want to carefully research the tax rules as well as the risks and benefits of your choice. Since you've already made a really smart financial move by contributing so much to your retirement security, there's no doubt this research will lead you to the choice that's right for you.