6 Smart Places to Invest After a Workplace Retirement Plan
By Laura Adams, MBA
Once you contribute to a retirement plan at work, such as a 401(k) or 403(b), and still have more to invest, you might wonder where to turn next. Whether you max out an employer’s match or the allowable annual contribution limit, you’re in an excellent position to use more options to secure your retirement or achieve other goals like paying for education or buying a home.
Maxing out a workplace retirement plan should be your top financial priority because it has high annual contribution limits. For 2023, the contribution limit for most workplace retirement plans is $22,500, or $30,000 if you're over 50. If you’re fortunate, your employer may add free matching funds, allowing you to exceed those limits.
Here are the six best places to invest after your retirement at work, including options if you don't have a job with a retirement plan.
1. Maximize a Roth IRA
After your workplace retirement plan, contributing to Roth IRA should be your next priority. For 2023, the IRA contribution limit is $6,500 or $7,500 if you're over 50.
With Roth accounts, you pay tax upfront on contributions and then can take tax-free withdrawals in retirement. Unlike a workplace Roth, there are annual income limits for contributing to a Roth IRA as follows, for 2023:
- Single tax filers must have modified adjusted gross income (MAGI) below $153,000.
- Married couples filing joint taxes must have MAGI under $228,000.
If you’re eligible for a Roth IRA, you can partially or fully fund it and max out your workplace retirement plan in the same year.
2. Leverage a self-employed retirement account
If you have full- or part-time business income from an entrepreneurial venture, partnership or freelance work, you qualify for a self-employed retirement plan, such as a solo 401(k) or SEP-IRA.
For 2023, you can contribute up to $66,000, depending on your business income. For the solo 401(k), catch-up contributions are allowed when you’re over 50, giving you a potential maximum contribution of $73,500 ($66,000 plus $7,500).
Note that if you have business income and a day job with a retirement plan, the self-employed account limits must include your workplace contributions. But it’s a fantastic way for entrepreneurs who max out a 401(k) at their day job to save even more for retirement.
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3. Contribute to a health savings account (HSA)
After exhausting the best retirement options, a health savings account or HSA is the next place to invest. However, it's only available when you have a high deductible, HSA-eligible health plan.
If you qualify for an HSA, the 2023 contribution limit is $3,850 when you have an individual health plan or $7,750 for a family plan. Plus, if you're over age 55, you can contribute an additional $1,000.
HSAs give triple tax benefits: tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified expenses, including medical, dental, vision, chiropractic, acupuncture, prescriptions, and many over-the-counter medicines and products.
Like a retirement account, you can invest your HSA balance, which rolls over yearly without penalty. If you have a balance after age 65, you can even spend it on non-medical expenses without penalty (but income taxes are due). Before age 65, spending HSA funds on non-qualified costs means paying income tax plus an additional 20% penalty.
4. Fund a 529 college savings plan
If you plan to pay education expenses—such as tuition, books, computer equipment, internet and room and board—for you or a family member, a 529 college saving plan comes with nice tax breaks. Plus, you can even use up to $10,000 per year for education expenses related to public or private school for students in kindergarten through high school.
Once a student is out of high school, you can use a 529 for any college, university, graduate school or vocational school without an annual limit if the institution is eligible to participate in a federal student aid program.
While 529 contributions are not tax-deductible, your account grows tax-free if you use the funds for qualified education expenses. And there are no restrictions on annual income to participate.
5. Use a taxable brokerage account
Consider a taxable brokerage account or investing platform once you've exhausted tax-advantaged ways to invest extra money. While they don't give you any tax breaks, a brokerage allows you to choose almost any investment, invest as much as you want, and make withdrawals for any reason without penalty.
Note that with retirement accounts, you generally must be over age 59.5 to avoid a 10% early withdrawal penalty and income tax on amounts not previously taxed. The flexibility of a brokerage makes it a valuable investment vehicle for your intermediate goals or an extra reserve for your long-term financial needs.
When you have investment dividends or capital gains in a brokerage, you must report it on your tax return. The firm sends out tax forms for the prior year in January, so you know the types and amounts of income earned or lost.
6. Save to purchase real estate
Buying real estate as an investment or residence can provide benefits like tax deductions and potential price appreciation. Historically, real estate has been an excellent long-term investment. But there's no guarantee that a home's value will increase or appreciate as quickly as you'd like.
Plus, fixed mortgages that amortize allow you to build wealth by reducing your outstanding loan balance by a slightly larger amount each month. When your home value increases while you pay down your mortgage balance, it's a powerful way to build wealth.
The best places to invest depend on your financial situation, goals, account eligibility and account investment choices. Remember that all investments come with risk, so consider getting personalized advice from a financial advisor based on your risk tolerance and goals.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.