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5 Ways to Save More After Maxing Out Your 401(k)

If you think you will max out your 401(k) contributions (that's your voluntary pre-tax deferral of $18,000, or $24,000 if you are 50 or older by year-end), or already have, and you want to save more for your retirement, here are five more ways to save.

1. Save With a Non-Deductible IRA 

You can contribute up to $5,500 per year (or $6,500 if over age 50) to these plans. Your account will grow tax-deferred but you won't receive a current year tax deduction for your contribution. When you do start making withdrawals, you'll be subject to ordinary income tax rates prevailing at the time. These may be higher than the current maximum federal rate on long-term capital gains and qualified dividends (15% or 20%), which is why this option makes the most sense if you have more than a few years until retirement. (For related reading, see: IRA Contributions: Deductions and Tax Credits.)

2. Contribute to a Roth IRA 

This is probably the best and first option to consider. You can contribute up to $5,500 per year (or $6,500 if over age 50). Unlike traditional IRAs or 401(k) plans, you will not be required to take minimum distributions. This means that your investment can have more opportunity to grow. While there are income limitations to qualify for this option (modified adjusted gross income less than $132,000 for single filers or $194,000 if married filing jointly), there are loopholes to do a "backdoor Roth" that you can use.

3. Consider Low-Cost Fixed or Variable Annuities

For tax-deferred savings without the limits of IRAs or 401(k)s, you can choose to invest in variable annuities. These are offered by insurance companies. In a variable annuity, you get access to mutual-fund-like investments held within an insurance contract, which is what qualifies the investment for tax deferral. For a fixed annuity, you get a guaranteed credit rate (like a CD interest rate,) and in some cases a credit rate based on a formula tied to a market index. 

When you do take distributions, you can set up a stream of income over a set period or for your lifetime. Withdrawals will be subject to income tax on the earnings portion of your payment. But a portion of each payment will be untaxed as it will be classified as a "return of principal." I like and recommend low-cost variable options that are stripped of expensive riders that most people never use. Look at offerings from Jefferson National (Monument series) or Veritas. For fixed annuities, I suggest calling Vanguard. (For related reading, see: An Overview of Annuities.)

4. Fund Taxable Investment Accounts 

You won't have to worry about any limits here as you do with IRAs or 401(k)s. And you'll have access to a broad range of investments and investment custodian platforms. Your investment gains and dividends will be subject to very favorable (current) tax rates of 15% or 20% (the latter rate applies if you are in a high-income category).

5. Make After-Tax Contributions to Your 401(k)

The most direct option available? Make after-tax contributions to your existing 401(k) account. The amount that you can contribute depends on your plan document and how much you've contributed pre-tax already. You'd have to check your 401(k) plan's summary plan document for details but all plans allow after-tax contributions. The limit changes from time to time but for 2017 the limit is $54,000 and is the total of your contributions on a pre-tax basis plus employer match or profit-sharing and after-tax contribution limits allowed under the plan. If you have a good selection of low-cost options in the plan, this may be a good place to start. (For more from this author, see: Tax Planning Strategies for Retirement Investments.)