What To Do When You Max Out Your 401k Plan
Alternate methods to help with maxing out your 401k
Just because you've maxed out your annual 401(k) contribution, doesn't mean there's nothing else you can do. Try some of these:
a.. Reduce your debt. Use extra cash to eliminate or reduce credit card debt. No other investment pays 18% annually. The quicker you pay off your debts, the less you'll ultimately have to pay in interest.
b.. Fund your IRA. You can contribute up to $2,000 per year and the money will compound tax-free, until you begin withdrawing it. Have the same amount you had withdrawn from your check for your 401(k) directly deposited to a money market account in your IRA, or have the IRA electronically withdraw it from your checking account.
c.. If you own a variable or universal life insurance policy, consider contributing to its cash value portion. You'll only want to do this if the additional cash builds investments, not buys more insurance.
d.. Buy a tax-deferred variable annuity. Buy it through your insurance company; the money is tax-sheltered. This will only work if you leave the money for at least 15 years and only make periodic withdrawals instead of lump sums when you need to use the money. By not doing both, the high expenses of most annuities make purchasing them unwise.
e.. Use a plan, old investment account. This is not a tax-deferred account so there's no tax benefit to it, but you're still saving for retirement which is better than spending the money.
f.. Buy a growth stock fund. This will lower your tax bite, pay low dividends, and generate substantial capital gains. But don't withdraw until after you've retired and/or in a lower tax bracket.
No matter how carefully we plan for the future and our retirement, our later years can be a journey into the unknown. Because of this, we can never be too financially protected.