September 14, 2020
By Rahul Iyer
Maxing out your 401(k) is a great achievement when it comes to preparing yourself for your retirement years. However, just stopping there may leave you behind in the retirement game. In this article, we will discuss what to do next after hitting this milestone.
Just in case you have not yet grasped an understanding of what maxing out a 401(k) means, let us discuss that before we begin. In 2020, The maximum amount that you can contribute to a 401(k) is $19,500 if you are under the age of 50. If you are older than 50, you are offered the opportunity of making additional contributions to your 401(k) under what is called a catch-up contribution. This additional amount that is permitted is $6,500. If you qualify, this takes the limit of your annual contribution to $26,000.
Now that we are on the same page, let us discuss what to do after you max out your 401(k).
You can choose to begin contributing to a traditional IRA or a Roth IRA. This can be done even while you are contributing to a 401(k). This is a great option as your money will continue to grow tax-free. The tax benefits that you are able to receive from an IRA or Roth IRA will be dependent on how much you earn.
Having maxed out your 401(k), you now have the option of placing your money in other strategic investment vehicles. You could consult with a professional financial advisor to get an idea of what investment vehicles perfectly suits your income level and financial goals.
Municipal bonds are among the safest options when it comes to investments. The extra funds that you would like to put towards your investment can be loaned to the state, county, city, town, or some other local authority. The funds you lend is then used to invest in the development of the state and well-being of its citizens. As you lend funds to a local authority, you earn interest income. This income is not usually taxed; nevertheless, investigate this before investing.
With retirement planning being a long-term game, real estate investing is an ideal option. With the right strategy and property selection, you will find that the appreciation of your property over the years of your investment will help your financial state greatly after retirement. The cashflow that a properly positioned property (or properties) can provide for you will prove to be a great additional investment to your 401(k).
Many believe that they have done all that is possible to prepare for their retirement after maxing out their 401(k), but that is far from the truth. There are many other things that you can choose to do after maxing out your 401(k). You could also consider starting a business or investing in such options as variable annuities, variable universal life, or individual holdings.