Maxed out your 401(k)? Here’s how to invest for retirement now

A 401(k) is one of the top ways to save for retirement, not only because of its tax advantages, but also because many employers match contributions in the account. But where else can high-octane savers invest once they’ve maxed out their 401(k)? Even if you aren’t one of those savers, financial advisors say some smart strategies can help you do better with what you have.

Here’s how to invest when your 401(k) is maxed out, according to experts.

The 401(k) account is useful — but not always the best

A 401(k) allows workers to really stash their cash, putting away as much as $23,000 (in 2024) or $23,500 (in 2025). And those age 50 and over can save an additional $7,500 in the account each year. Furthermore, starting in 2025, employees aged 60, 61, 62 and 63 have a catch-up contribution limit of $11,250 instead of $7,500.

These high amounts give workers ample room to save, but many advisors suggest that they may want to max out other accounts before fully topping up their 401(k).

Advisors recommend that workers get all the free money in their 401(k) first, ensuring that they get the full amount from their employer match, before moving on to other accounts.

“Who doesn’t love free money,” says Michael Berkhahn, CFP, vice president, Graham Capital Wealth Management in the Tampa area. “By not participating in your company’s 401(k) plan, you could be throwing free money out the window. When starting a new job, one of the first questions you should ask HR is how much the employer matches and when does it start.”

How to invest when your 401(k) is maxed out

Once you’ve secured your full employer match, many advisors recommend moving to other accounts before coming back to your 401(k), if you have the savings to do so.

For example, Zach Ungerott, CPWA, CFP, senior wealth advisor with Hightower Wealth Advisors in St. Louis, suggests adding funds to your health savings account (HSA). He advises clients to claim any free match in an HSA, if possible, before topping off the account.

This move may surprise many people, but the HSA can offer huge tax benefits for health care as well as retirement. You can defer any investment gains, and at age 65 the account effectively turns into a traditional IRA, letting you withdraw money and pay taxes at ordinary income rates.

In contrast, Berkhahn suggests that after receiving their employer match savers use a Roth IRA, though he acknowledges that your circumstances can change what is the next best step for you.

“A Roth IRA can be one of the most essential parts to your retirement plan,” he says. “It reduces the unknown risk of where taxes may be in the future once one retires.”

A Roth IRA allows those with earned income to save on an after-tax basis, grow their money tax-free and then withdraw any funds tax-free after age 59 ½.

Come back and top up the 401(k) and other accounts

While advisors may disagree on the order in which savers should take advantage of accounts, many do agree that other accounts offer some notable advantages that are worthwhile. After saving in those accounts, it can be wise to come back to the 401(k) and max that out. Only then should savers move on to a taxable brokerage account or an annuity.

The good news for “super savers” is that they may not need to make trade-offs among accounts. If they’re scheduled to earn enough to take full advantage of multiple accounts such as the 401(k), HSA and Roth IRA, then they can set their financial plan to execute automatically. As a saver progresses through the year, they won’t have to turn plans on and off once they top them up.

And it’s important to not forget the tax advantages of even “plain vanilla” brokerage accounts either. An account holder won’t be hit with capital gains taxes until they sell an investment. So if you’re a long-term buy-and-hold investor, you can defer capital gains taxes indefinitely and will only need to pick up the tab on any dividend income, which may even be taxed at preferential rates.

Taxable brokerage accounts are a necessity for those with FIRE lifestyles (financial independence, retire early), since many plan to retire well before age 59 ½, when typical plans become accessible without penalties.

How do other retirement plans fit in?

The owners of small businesses or other high earners may be wondering how special plans available to them may fit into this scheme. Sole proprietors have access to solo 401(k) plans and SEP IRAs that can drastically increase the ability to save for retirement. Other high earners can take advantage of there being no contribution limits on annuities to enjoy tax-deferred income, too.

“Solo 401(k)s are a great tool to max out for the employee portion but [they] also allow you to make the employer contribution to save even more money,” says Ungerott.

In 2024, a solo 401(k) allows the participant to save up to $23,000 as an employee contribution and a further $46,000 as an employer contribution. Those aged 50 and over can add another $7,500.

Meanwhile, a single-participant SEP IRA offers the ability to save the lesser of 25 percent of your business income or up to $69,000 in 2024 and $70,000 in 2025 as employer contributions.

“Typically, these types of retirement accounts should not adjust the sequence of how you should contribute to your retirement,” says Berkhahn.

For example, if you have a solo 401(k) for a side gig, you don’t want to max out your employee contribution there and then not be able to max out your 401(k) at your primary job and therefore not receive an employer match. You can first fill up the 401(k) where you receive a match, and then move to the solo 401(k), where you can add money as an employer contribution.

Annuities can be another way to save on a tax-deferred basis, making them better for higher earners. But other retirement accounts offer more flexibility and lower fees, so annuities may fit better for those in specific financial circumstances or who have topped out other accounts.

“Annuities can play an important role in a retirement plan, but it’s very dependent on a client’s goals,” says Ungerott. “Annuities can be expensive, but some individuals are okay paying the higher cost for the guaranteed income that can come with the annuity.”

Not only are their costs high, says Berkhahn, but annuities offer other disadvantages.

“The limited early access to funds, enforced by surrender charges, can hinder your ability to make withdrawals when necessary,” he says. “Although annuities grow tax-deferred, withdrawals are taxed as ordinary income, potentially disadvantageous for those in higher income tax brackets, where long-term capital gains may be at a lower rate.”

So annuities may be best suited for those who have already maxed out the most advantageous accounts and are still looking to save even more and can afford the higher costs. Taxable brokerage accounts may be a better option for those who can handle the market’s volatility.

Bottom line

Despite the strategy of contributing to retirement accounts laid out here, your financial needs may differ significantly and so should your strategy. Working with a financial advisor can help tailor a strategy that works best for you and your family. Bankrate’s financial advisor matching tool can help you get set up with an advisor in your area in minutes.

— Bankrate’s Rachel Christian contributed to an update of this article.