Dave Ramsey Blog: How To Invest After Maxing Out Your 401(k)
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Nicole Spector
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Chris Cluff
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Most Americans can’t afford to max out their 401(k) plans, which means the issue of how to invest after going as far as they possibly can with this common type of retirement plan isn’t relevant to them. But there are folks out there who are able to max out their 401(k) plans.
For people in this prosperous position, what’s next? How should they invest their money now that they’ve used the full capacity of their 401(k)?
The team at financial expert Dave Ramsey’s site, Ramsey Solutions, recently posted a blog discussing four ways to invest after maxing out your 401(k) plan.
Get Either a Traditional or a Roth IRA
Keep in mind that 401(k) plans aren’t the only retirement plans out there. You have other options that will help you build retirement savings. Embrace an IRA or a Roth IRA in addition to your 401(k) plan.
“An individual retirement account (IRA) lets you invest for retirement outside of your workplace,” the Ramsey team wrote. “And it’s the first place you should try to invest beyond your workplace retirement plan.”
Also remember that you don’t need to choose between a 401(k) plan and an IRA. You can have both.
“You can put money into a traditional or Roth IRA and your 401(k) at work,” the Ramsey team wrote. “For 2024, you can invest up to $7,000 in IRAs ($8,000 if you’re 50 or older).”
Open a Brokerage Account
A tried and true way to invest beyond your 401(k) plan is to open a brokerage account, also known as a taxable investment account. These are offered by investment management companies or brokerage firms.
Though brokerage accounts don’t come with tax breaks, they boast a variety of strong perks in other ways. The Ramsey team pointed out that with brokerage accounts, there are no required minimum distributions (RMDs).
“With a 401(k) or traditional IRA, you have to start taking money out once you reach a certain age. Not so with a brokerage account,” the Ramsey team wrote, and went on to highlight that there are no income limits or IRS limitations, no contribution limits and more flexibility.
“The downside of a taxable investment account is — you guessed it — the taxes,” the Ramsey team wrote. “You’ll pay capital gains taxes on the growth of those investments because the government is, well, the government.”
Explore Real Estate as an Alternative Investment
Once you’ve maxed out your 401(k), you should look into alternative investments. These help diversify your portfolio. Real estate is a standout alternative investment that, if made with a calculated and research-backed strategy, can hedge against inflation and provide profitable returns. But this isn’t an investment to go into without a lot of deep consideration and budgeting.
“Buying and managing rental properties takes a lot of time, money, patience and hard work — so you need to know what you’re getting yourself into before you dive in,” the Ramsey team wrote, adding that before you invest in real estate, you should have your mortgage paid off, work with a real estate agent and be ready to pay in cash to avoid going into debt.
Max Out Your HSA
A Health Savings Account (HSA) is a type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. HSAs don’t have annual withdrawal requirements, so you can let your pre-tax dollars stack up.
The Ramsey team recommended maxing out your HSA.
“While HSAs are designed first and foremost to help you pay for medical expenses, they can also help you save a little extra for retirement too,” the Ramsey team wrote. “For 2024, individuals can save up to $4,150 in their HSAs (those with family coverage can contribute up to $8,300).”
Once you turn 65, your HSA is essentially a traditional IRA.
“That means you can take out money for anything you’d like,” the Ramsey team wrote. “But you’ll pay taxes on it when you do — just like a traditional IRA.”
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