Retirement Savings: These Plans Are Available If You Max Out Your 401(k)

Plenty of Americans don’t take full advantage of their 401(k) plans, and many are pulling money out early. But there is some good news on the 401(k) front: There are folks who have maxed out their 401(k). This means they’ve made contributions up to the annual limit designated by the IRS.

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If you’re among those who have maxed out your 401(k), keep in mind that there are additional plans out there available to you. Consider the following options for building up even more investments for your retirement.

Traditional IRA

A traditional IRA is a fine vehicle to invest in for retirement, as it allows you to build on a tax-deferred basis.

“The investor will only pay taxes when they withdraw their money post-retirement,” said Jeff Mandel, CEO of Credit & Debt. “Another benefit is that certain qualifying individuals can deduct contributions to the account from their taxable income. This option provides individuals a ton of flexibility with how they want to invest their funds on a tax-deferred basis.”

But note that there is a downside to traditional IRAs.

“There are annual caps — $6,500 if the person is under the age of 50 and $7,500 for those over 50 years old — and… all the contributions may not be tax deductible, based on income levels,” Mandel said.

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Roth IRA

You may be wondering what makes a Roth IRA distinct from a traditional Roth IRA. Mandel broke it down.

“The most material difference between a Roth IRA and a traditional IRA is that a person makes their contributions on an after-tax basis,” Mandel said. “The benefits are that a person will be able to grow their money on a tax-free basis and withdraw any of it after retirement on a tax-free basis. In short, a Roth IRA enables an individual who has excess income to avoid paying taxes on the accumulated growth of the investment, as long as they are able to wait until retirement to withdraw their funds.”

Bear in mind that a Roth IRA has the same annual maximum contribution caps as a traditional IRA.

457(b) Plan

A 457(b) plan is an option for employees of state and local governments and certain tax-exempt organizations. If you have a qualifying profession, you should look into this.

“Contributions to a 457(b) plan are made on a pre-tax basis, reducing taxable income in the year of contribution,” said Taylor Kovar, CFP, founder and CEO at 11 Financial. “Withdrawals from a 457(b) plan are taxed as ordinary income in retirement. Unlike a 401(k), there is no penalty for early withdrawal from a 457(b) plan upon separation from service, although income taxes still apply.”

403(b) Plan

If you work in a public school, college or other tax-exempt organization in that vein, you’re entitled to a 403(b) plan.

“Contributions to a 403(b) plan are made on a pre-tax basis, similar to a traditional IRA or 401(k). Like a 401(k), withdrawals from a 403(b) plan are subject to ordinary income tax in retirement,” Kovar said. “Some 403(b) plans also offer a Roth contribution option, allowing employees to make after-tax contributions.”

Think About Other Ways To Invest for Retirement

There aren’t a great many types of retirement-specific plans out there, but there are a ton of other ways to invest in a solid foundation for your golden years.

“The list of other investment options is endless,” Mandel said.

Consider municipal bonds, real estate or even startups. Your choices should be guided by your risk profile and where you’re at financially. The one-on-one help of a financial advisor is highly recommended.

“Based on each individual’s personal situation, there are many investment options to consider above and beyond maxing out your 401(k) plans,” Mandel said. “My theory is that the far majority of people are going to need more than they think post-retirement.”

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This article originally appeared on Retirement Savings: These Plans Are Available If You Max Out Your 401(k)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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