Nick Maggiulli, author of “Just Keep Buying”, shares what to do after maxing out your Roth IRA. As an advocate for continued capital accumulation as a way to financial independence and security, Nick breaks down simple strategies to support your growth.
We also discuss the importance of understanding when a 401k plan at work is worth it or not.
If you've ever wondered what to do when your Roth is maxed out, here are some options to help keep your money working for you and your financial future!
What To Do After Maxing Out Your Roth IRA
For most people, you build your wealth over time. That means investing in different kinds of capital throughout your career and maybe even after. One of the investment options that people love to love is the Roth IRA. There are so many advantages to Roth IRAs. From the flexibility of where you open your account (might we suggest long-time favorite Vanguard?!) to seeing your money grow tax-free, it makes sense why so many people focus on this investment first.
But what happens after you've maxed out your Roth IRA? There are still plenty of ways you can grow your capital. Let's explore some of the different options you have!
Take Advantage of Employer Matching Funds (401K and HSA)
Need to know what to do after maxing our your Roth IRA? Get your “free money”! So many people talk about a company match as free money. While we definitely understand that perspective, we see it another way too. Your company match is actually part of your compensation package! All the more reason to not leave that money on the table.
So if your employer matches your 401k investments up to 3% of your salary, definitely consider investing 3%. That way, you can essentially double your investing power thanks to your company match. You might find yourself in a similar situation with your HSA as well.
Now, it's possible that you find yourself in an unfortunate situation. Perhaps your company doesn't offer a match. Or maybe your account offerings are full of high fees. There are plenty of other investment options beyond your company match.
Fund Your Health Savings Account
One second you're wondering what to do after maxing out your Roth IRA and the next you're reading about health insurance. Wild, right? We promise talking HSAs is actually really strategic and can be a logical next step!
If you have a high-deductible health plan, you can access a Health Savings Account (HSA) through Lively or other administrators. An HSA can be a really helpful way to cover expected (or unexpected!) medical expenses.
But HSAs also have a secret investing superpower. Depending on your HSA is set up, you can either fund it with pre-tax dollars from your salary or after-tax dollars and then snag a tax deduction. That means that the money going into your account is tax free! But it gets better! You can also make tax-free withdrawals for qualified expenses, and as your capital grows over time, all of that growth happens tax free as well.
It gets even better. At the age of 65, your HSA essentially becomes a regular retirement account. That means you can pull your money out for any reason and it's only taxed as ordinary income. There's no fees, no penalty, nothing.
Interested in learning more about an HSA? We have you covered here with our HSA FAQ!
Add to Your Taxable Brokerage
Not everyone has access to a HSA or 401k, but there is something that everyone can do after maxing out a Roth IRA: open a taxable brokerage. Just like your Roth IRA, a taxable brokerage account with M1 Finance or another broker puts you in complete control of how your money gets invested.
There's no sorting through limited workplace options and dodging high fees. Instead, you invest your money in the types of investments that best fit your goals and risk tolerance.
In addition to having a lot of flexibility in terms of how you invest, you also enjoy freedom in terms of accessing your money. People often get hung up on the “taxable” part of a taxable brokerage account.
But did you know this? If you are not working or earning any income, you can pull up to $40,000 a year tax free from your taxable brokerage thanks to special treatment of capital gains? If you're married, you can pull double that. Then, if you factor in the standard deduction at tax time, you and your partner can live on nearly $100,000 a year tax free.
Of course, you have to do some tax planning and strategizing to make sure the numbers work for you. But it's a good reminder that taxable brokerage accounts have a lot going for them. In fact, many people consider them a bridge account that can carry you to financial independence.
Consider a Solo 401k
Do you have a side gig? Are you a contractor or maybe you've made the leap into running a small business? Don't overlook a Solo 401k as an investing option.
First things first. There are no income or age restrictions on setting up a solo 401k. To qualify, though, you have to be a business owner with no employees. In 2022, you can contribute up to $61,000, which is a whole lot of investing power you could be leaving on the table if you don't consider a solo 401k.
Explore Real Estate Investing
We've talked to many people on the podcast who use real estate to springboard their journey to financial freedom. There are people who have used real estate to make a million dollars and more! It can be overwhelming to get started, but we've also had experts share real estate strategies that anyone can use.
If you're looking to add real estate investing to your portfolio but want to make it as stress-free as possible, consider Arrived Homes. Arrived Homes lets you start building a real estate portfolio with as little as $100. I've personally found it to be really user friendly and intuitive.
You browse a variety of properties from their listings and see how many other people are currently investing in them. Then, you decide how much you want to invest–starting with $100 or up to about 10% of the property's value. Once a quarter, you will receive rental income deposits. Plus you can also look forward to benefiting from property appreciation should the value go up.
Look into Farmland
We know what you're thinking! Farmland? No green thumbs needed! Investing in farmland is growing in popularity because the value of farmland tends to remain more consistent even during period of market swings.
While investing in farmland was previously reserved for institutional investors and farmers, there are new platforms like FarmTogether that make it possible for just about anyone to get in on farmland investments. As with any type of investing, you want to do your due diligence and make sure that your investment matches your goals and your risk preference.
Final Thoughts on What to Do After Maxing Our Your Roth IRA
Do you find yourself stumped by what to do after maxing out your Roth IRA? You have options!
From looking into employer-sponsored plans or setting up a solo 401k to investing in real estate or growing a taxable brokerage, there are plenty of smart money moves to make after your Roth IRA is maxed out for the year.
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Guest Bio – Nick Maggiullil
Nick Maggiulli is the Chief Operating Officer and Data Scientist at Ritholtz Wealth Management, where he oversees operations across the firm and provides insights on business intelligence.
He is also the author of OfDollarsAndData.com, a blog focused on the intersection of data and personal finance. His work has been featured in The Wall Street Journal, CNBC, and The Los Angeles Times.
Nick graduated from Stanford University with a degree in Economics and currently resides in New York City.
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Are you wondering what to do after maxing out your Roth IRA? What do you think of the advice from Nick Maggiulli?
Please let us know in the comments below.