Where to Invest After Maxing Out Your 401(k)

The Priority Order

Once you've maxed your 401(k) ($23,500 for 2024), here's where to go next:

1. Roth IRA (if eligible)

2024 limit: $7,000/year ($8,000 if 50+)

Income limits: Can contribute directly if your modified AGI is under $146,000 single / $230,000 married. Above these limits, use the backdoor Roth (below).

Why: All growth and withdrawals are tax-free. One of the best accounts available.

Backdoor Roth: If you earn too much to contribute directly, you can make a non-deductible traditional IRA contribution and immediately convert it to Roth. This is legal and widely used.

2. HSA (if you have a high-deductible health plan)

2024 limit: $4,150 individual / $8,300 family

The triple tax advantage:

• Contributions are pre-tax
• Growth is tax-free
• Withdrawals for medical expenses are tax-free

The HSA is arguably the best tax-advantaged account that exists because of this triple benefit. After age 65, you can withdraw for any purpose (like a traditional IRA), making it an excellent supplemental retirement account.

Strategy: Contribute to the HSA, invest it, and pay medical expenses out of pocket now. Save the receipts — you can reimburse yourself decades later tax-free, while the invested funds have grown.

3. Back to the 401(k) — After-Tax / Mega Backdoor Roth

Some 401(k) plans allow after-tax contributions beyond the normal $23,500 limit. The total contribution limit (including employer match + after-tax) is $69,000 in 2024.

If your plan supports it, you can roll these after-tax contributions to a Roth IRA (in-service rollover) or convert to Roth within the plan. This is called the "mega backdoor Roth."

Not all plans support this. Check with your plan administrator.

4. Taxable Brokerage Account

After exhausting tax-advantaged options, invest in a regular taxable brokerage account.

What to know:

• You pay taxes on dividends and capital gains each year
• Long-term capital gains (held 1+ year) are taxed at lower rates (0%, 15%, or 20% depending on income)
• Tax-loss harvesting can offset gains — most major brokers offer this
• Buy and hold index funds to minimize taxable events

What to buy: Same as your tax-advantaged accounts — broad index funds. Total market index funds produce fewer taxable events than actively managed funds.

For High Earners: Additional Considerations

Deferred compensation (457b, if offered): Some employers offer non-governmental 457(b) plans which defer income tax. Valuable if offered.

I-Bonds: Up to $10,000/year in Treasury I-Bonds, which earn inflation-adjusted interest, tax-deferred at federal level. Limited to $10,000/year per person.

529 plans: If you have kids, maxing a 529 after the above accounts is reasonable. Contributions are after-tax but grow tax-free when used for education.

Keeping It Simple

For most people who've just maxed their 401(k):

1. Open a Roth IRA, contribute $7,000
2. If on a HDHP, max the HSA
3. Open a taxable brokerage at Fidelity/Vanguard/Schwab
4. Buy total market index funds in all accounts

At this savings rate, you're building wealth very effectively. The account type matters less than the habit.

FAQ

Do I need to max my 401(k) before the Roth IRA?

Not necessarily. If your 401(k) has poor investment options (high-fee funds), it can make sense to prioritize the Roth IRA over additional 401(k) contributions above the employer match.

What's better: Roth or traditional 401(k)?

Generally, Roth is better when you're in lower tax brackets now than you expect in retirement. Traditional is better when you're in high brackets now. Many people benefit from having both (tax diversification).