What’s next after you max out your 401(k) or 403(b)?

Maybe you didn’t ever think you could do it. Or you didn’t even realize you had until you looked at your retirement account. But now—big kudos!—you did it. You were able to max out your 401(k) this year. Now that you’ve reached that crucial financial goal, how else can you keep saving to maximize your retirement? We’ll help you answer that question with these money-savvy strategies that can help you keep saving toward your retirement goals:
 

Saving in an IRA after you max out your 401(k) or 403(b)

First, make sure you’re really on track to max out your 401(k) or other workplace plan contribution limit. For 401(k) or similar workplace retirement plans, you can contribute up to $19,500 in 2020 ($19,000 in 2019). Plus, if you’re age 50 or older in 2020, the retirement catch-up contribution is $6,500 ($6,000 in 2019), allowing you to contribute up to $26,000 ($25,000 in 2019).
 
If you have maxed out your 401(k) or 403(b), next look into an individual retirement account (IRA). Wherever you are in life, an IRA can help complement your workplace plan. The pretax savings guidelines for IRAs look pretty straightforward at first glance:
  • If you’re younger than age 50, you may sock away up to $6,000 pretax in an IRA if you meet certain IRS guidelines.
  • If you’re 50 or older, the IRS lets you contribute an additional $1,000, totaling $7,000, to an IRA.1
It’s a good idea to see if you are eligible for a Roth IRA, which has income limits. If you are eligible, you make contributions with after-tax dollars—but retirement withdrawals in many cases are tax-free.
 

Simplified Employee Pension (SEP) IRAs

If you’ve started consulting or added freelance gigs to your plate, you may be able to take advantage of Simplified Employee Pension (SEP) IRAs. A SEP, like an employer’s retirement plan, is funded with pretax dollars, potentially lowering your taxable income. Under federal rules, you may be able to put away up to 25% of your 2020 net income from those ventures, or up to $57,000 ($56,000 for 2019).2
 

Saving with your spouse

Look across the breakfast table. Is your spouse taking advantage of their maximum 401(k) contribution limit and also an IRA? Making sure your significant other is also saving the max can set up both of you better for the future. Your spouse can contribute to an IRA even if they’re not working outside the home.
 
Draw up a list of reasons to stay, focusing first on the practical. For example, proximity to school, a good neighborhood, special features that accommodate aging parents, etc. Once that is done, it’s time to consider more emotionally charged reasons, the most common of which include maintaining a sense of continuity for your children. Remaining close to neighbors who are also supportive friends or the garden you cultivate in your “me time” may be other reasons to stay.
 

Boost your emergency fund

When was the last time you made sure you and your family had enough ​emergency savings? If it was more than one season of your favorite TV show ago, update your goal according to what you’d need tomorrow. You should be able to access that money quickly and not risk losing principal, so stick with a regular savings or money-market account or a six- or 12-month certificate of deposit (CD).
 
How much should you save? That depends on the size of your family and whether you work as an employee or rely on contract or freelance income, but after you max out your 401(k), a common goal is to have emergency dollars to cover six months’ worth of living expenses.3 
 

Saving in a personal annuity

If you want an additional way to save for retirement outside of your employer plan, consider a personal annuity. A personal annuity, also called an after-tax annuity, can help you build additional retirement savings. It offers options that can provide a steady stream of income when you retire.4
 

Saving in a 529 plan

Feeling good about your retirement game plan? Now that you maxed out your 401(k) contribution, tackle your college game plan next. A 529 plan is an investment account you can open on behalf of your child, other relatives or even yourself. These plans are sponsored by states and educational institutions and have tax advantages. Just know you have to spend this saved money on qualified education costs or possibly face tax penalties on withdrawals, and your contributions are considered gifts for tax purposes—so you can only contribute a certain amount each year (up to $15,000 in 2020) before the gift tax may apply.5
 

Saving for healthcare costs

Let’s talk doctors and dentists: Americans spend more than $10,000 per person per year on healthcare.6

If you qualify, consider opening a health savings account (HSA). HSAs are available if you have a high-deductible health plan—with at least a $1,400 annual deductible ($1,350 in 2019) for an individual or $2,800 for a family in 2020 ($2,700 in 2019), according to the IRS. HSAs let you save $3,550 ($3,500 in 2019) pretax as an individual and $7,100 ($7,000 in 2019) pretax if you have a family plan. And if you are 55 or older, you can contribute an additional $1,000 to an HSA.7
 
You can use funds in the account to pay for current qualified healthcare costs (think contact lenses, office co-pays, prescriptions), or you can leave the money in the account and use it later—even in retirement. After you turn 65, it’ll be tax-free if you use it for your qualified healthcare costs, and taxed as income with no penalty if you spend it other ways.
 

Sit back and celebrate

Implementing these pretax savings tips helps you reach your other savings goals above and beyond maxing out your 401(k) or other retirement contributions for the year. And while these ideas to save may not exactly seem like an indulgent splurge, finding new ways to invest in your future may be the best way to celebrate how well you’ve done in your workplace retirement plan.
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3  Managing your money, TIAA.org

4  Personal annuities, TIAA.org

CDs are FDIC insured and offer a fixed rate of return if held to maturity. Annuities are not FDIC insured. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax. Surrender charges apply.
 
This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

TIAA products may be subject to market and other risk factors.

Any guarantees under fixed annuities issued by TIAA are subject to TIAA’s claims-paying ability.

Certain products and services are only available to eligible individuals.
 
Please refer to the Plan Disclosure Book on a state 529 plan’s website prior to investing, for details on risk, tax benefits, charges and expenses, and whether your home state offers tax or other benefits such as financial aid, scholarship funds, or protection from creditors for investing in its own 529 plan. Investments in the Plan are neither insured nor guaranteed and there is the risk of investment loss. Consult your legal or tax professional for tax advice, including the impact of the new federal tax changes. TIAA-CREF Tuition Financing, Inc. (TFI) is the Plan Manager for several state 529 plans, and TIAA-CREF Individual & Institutional Services, LLC, Member FINRA and SIPC, is the distributor and underwriter for those plans.
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