3 not-so-secret accounts where you can stash even more money for retirement

Most savers know about IRAs and 401(k) plans – great places to stash away cash for retirement, invest in potentially high-return assets such as stock funds and get some good tax advantages for doing so. But those hustling to save even more for themselves or their family have a few more out-of-the-way options that can stack up thousands extra each year.

Below are three options for saving even more for retirement each year.

How to save even more for retirement with these three accounts

If you’re trying to get every extra dollar into a tax-advantaged account, then the three plans below let you do that. While one was developed expressly to help with retirement, the other two were designed for other purposes but can still help you or your family when it’s time to retire.

Solo 401(k)

The solo 401(k) may often be overshadowed by the SEP IRA, another small business retirement plan, but the solo 401(k) is probably a better option. The solo 401(k) lets you put away up to $22,500 (in 2023) as an employee contribution as well as 25 percent of business profits, for a maximum annual contribution of $66,000 (in 2023). Plus, those age 50 and over can sock away another $7,500 in catch-up contributions each year. That’s some serious savings.

So you don’t have that much? The solo 401(k) is actually a great plan for those with a small side gig, too. Your employee contribution is not limited to a percentage of your pay. You can contribute all your salary to the plan up to the annual maximum, unlike plans such as the SEP IRA, where you can contribute only 25 percent. So if you have, say, $1,500 in earnings from your side gig, you can stuff it all into a pre-tax solo 401(k) and pay no income taxes on it.

Those maximum annual contributions don’t stack with other 401(k) plans you may have. But even if you’ve maxed out your primary 401(k) account for a year, you can still add up to 25 percent of your business earnings to the solo 401(k), up to the annual maximum. And if you have a spouse working in the business, then they can participate in the solo 401(k), too.

If you’d prefer to make after-tax contributions and never pay tax on qualified withdrawals, then you should consider the Roth solo 401(k).

HSAs

It may be surprising to hear, but many financial advisors consider the health savings account (HSA) to be one of the top retirement plans. That’s due to a weird quirk that effectively turns the HSA into a traditional IRA once you turn age 65. And all along the way, you’ll still have a valuable plan that offers you a triple tax advantage in saving for healthcare:

• Contributions are tax-deductible.
• Earnings are tax-free if used for qualified healthcare expenses.
• Withdrawals are tax-free if used for qualified healthcare expenses.

Any funds left in the account at age 65 can be withdrawn without the usual 20 percent bonus penalty. Withdrawals are subject only to ordinary income tax, making the HSA like a traditional IRA. But since it’s not subject to required minimum distributions, it may even be a bit better of an option.

On top of all of this, the money in the account can be invested, potentially in high-return assets such as stocks and stock funds. While it’s probably wise to invest your HSA conservatively, many individuals decide to simply pay their healthcare expenses out of pocket and leave their HSA invested, allowing it to potentially pile up over decades, like a second IRA.

To obtain an HSA, you’ll need to be enrolled in a high-deductible healthcare plan. In 2023, the maximum contribution is $3,850 for individuals and $7,700 for families. Those who are age 55 and older can also make a $1,000 catch-up contribution. For 2024, the limits rise to $4,150 for individuals and $8,300 for families, with the same maximum catch-up contribution.

529 plans

The SECURE Act 2.0 has now turned 529 education savings plans into another potential source of retirement funds for you and your family. Money in 529 plans can be converted in 2024 and later into a Roth IRA for the account’s beneficiary. Both accounts are funded with after-tax money, meaning participants don’t enjoy a tax break when the money goes into the account.

The rules around the conversion are important to follow:

• Conversions are limited to that year’s IRA contribution limit.
• The 529 plan must have been opened for at least 15 years before a conversion.
• Money converted to a Roth IRA cannot have been deposited to the 529 plan in the prior five years.
• The owner of the Roth IRA must be the same as the 529 plan’s beneficiary.

So you could play the conversion a couple ways. First, if you’re the owner of the account, you could name yourself the beneficiary after a child has finished using it for education. Then you could convert the money for your own Roth IRA. But that’s not in addition to your own regular IRA contribution for the year, but rather in place of it, as the first rule above highlights.

Second, if your child owns the account and is the beneficiary, then they could use that money as a Roth IRA contribution. This conversion could be especially valuable in the early, post-graduation years of a career when money is often tighter. The extra years of compounding could make an enormous difference on the total funds available at retirement.

The best 529 plans allow you to invest in high-return assets and charge low fees.

Don’t forget your primary retirement accounts

Of course, you don’t want to forget about your key retirement accounts, which were created with the express purpose of retirement and are therefore more well-suited for it. For most individuals, those accounts are the IRA and the 401(k), or 403(b) account for public sector workers.

The IRA allows anyone with earned income – and even their spouses – to create a retirement account. With a traditional IRA, you can add money on a pre-tax basis and pay no taxes on your contributions, and be subject to taxes only when the money comes out of the account. With a Roth IRA, you’ll pay taxes on contributions, but then any qualified withdrawals are tax-free. Experts typically prefer the Roth IRA over the traditional IRA because of the tax benefit.

For a 401(k) or 403(b), your employer must offer the account for you to access one. These accounts offer higher contribution limits than an IRA, but they have a similar setup. A traditional plan allows you to contribute on a pre-tax basis and owe taxes only when money comes out of the account. A Roth version operates on an after-tax basis, with any qualified withdrawals tax-free. Advisors also typically prefer the Roth 401(k) over the traditional 401(k).

Bottom line

If your goal is to max out your tax-advantaged plans, then you have some other options to help you do that. But don’t forget that investors have a powerful tax advantage even in taxable brokerage accounts, since they pay no capital gains taxes on appreciated assets as long as they don’t realize a profit. That is, you can hold stocks for decades and never owe a dime.