In 2019, maxing out your Roth IRA means that you have contributed the maximum of $6,000 (or $7,000 if you are 50 or older) to it. Once you’ve hit that limit, though, there are a number of other retirement plans and tax-deferred savings vehicles for which you still may be eligible in your quest to save for retirement.
- You can explore other defined-contribution plans, such as 401(k), 403(b), and 457 plans.
- If you are self-employed or have your own small business, look at SIMPLE and SEP IRAs, as well as an independent 401(k).
- Defined-benefit plans and annuities are also possibilities.
- And don't forget a Health Savings Account (HSA) if you have a high-deductible health plan.
Look at Other Defined-Contribution Plans
The first option to explore is a 401(k), 403(b), or 457 plan at work. If your employer offers one of these plans, you can contribute up to $19,000 (or $25,000 if you are 50 or older) as of 2019. Many employers offer a contribution match, which is one of the best retirement investment features available. In fact, if that's available, max out your 401(k) matching-money contributions before you put a penny into your Roth IRA.
If you have self-employment income or your own small business, there are alternative retirement plans available to you. A SIMPLE IRA allows you to save up to $13,000 ($16,000 if you are 50 or older) in pretax dollars in 2019, and no tax is owed until you make withdrawals. Depending upon your income, you may be able to set up your own 401(k), also known as a solo or independent 401(k), or a SEP IRA. For 2019 you can then defer up to $56,000 in either of them, up from $55,000 in 2018.
If your employer offers a matching contribution to your defined-contribution plan, make sure to take advantage of it.
Defined-Benefit Plans (If You're Self Employed)
Beyond defined-contribution plans, depending on their age and income, if you're self-employed, consider setting up a defined-benefit plan. These are complicated retirement plans that require significant paperwork, administration, and fees. Nevertheless, if you earn a large amount of self-employment income and are nearing retirement, you could defer up to $225,000 per year as of 2019.
As you know, a Roth IRA contribution is made with after-tax money, which means that you don’t receive a tax deduction for your contributions. However, you won’t owe any taxes in the future. Other IRAs and defined-benefit plans are tax deferred, meaning you get a tax deduction at the time of making the contribution but will owe taxes when you withdraw your funds.
If you have exhausted all the tax-deferred and tax-exempt retirement accounts for which you qualify, and are in a high tax bracket, you might want to look into annuities, which are insurance products that confer tax benefits. Annuities have a justly deserved bad reputation for high fees and poor investment options.
Still, there is a newer class of annuities, sometimes called “investment-only” annuities, that are lower in cost. These annuities are created for tax-deferral purposes, not for insurance benefits. When you purchase them, be sure to avoid any guarantees, protections, or life insurance riders. Your after-tax contributions will grow tax deferred, and there is no limit on the amount of after-tax money you can contribute. Unlike a Roth IRA, you will owe taxes on the gains at withdrawal, but you won’t owe tax on the principal.
Health Savings Accounts (HSAs)
HSAs are, of course, intended to be used for healthcare costs, with withdrawals only being tax free if they go toward certain approved medical expenses. Still, we all have those, particularly as the years roll by. You contribute after-tax money to an HSA, which grows tax free while in the HSA.
In 2019 you can contribute up to $3,500 to an HSA ($7,000 for a family), with anyone 55 or older being allowed to contribute an extra $1,000. However, you must have a high-deductible health plan in order to have an HSA, and you can’t contribute to one after you enroll in Medicare.
The Bottom Line
You have many options to choose from after you have maxed out your Roth IRA. However, how much you can save may be limited by the amount and type of income you have earned and other accounts to which you have contributed. To be safe, you should check with a tax professional.