What can I do to save for retirement after I’ve maxed out my 401k? This is a common question we get asked. It’s also a great problem to have – as that usually means you have extra income each month after you have paid your living expenses.
I’ll briefly cover a few options below, and there are more out there.
Other ways to save for retirement: The savings account
Probably the easiest way to save for retirement is open a savings account. This may be the simplest option, but it also may be the least rewarding (at least it might be right now, when interest rates are extremely low).
There are two drawbacks to this option: You’re not going to make a ton of interest because of low rates and what little money you earn will be taxed at your ordinary income rate each year.
Other ways to save for retirement: The Traditional IRA
Another option would be to contribute to a traditional IRA. Some can deduct their contributions from their income for an added tax benefit (if that’s an option for you, look into the ROTH IRA as well), but others might have too high an income to get the deduction (check out this link for more info)
If you aren’t able to get a deduction, you could also consider non-deductible IRA contributions. These kind of situations can get tricky, so it’s a good idea to work with a financial advisor and tax professional to make sure you’re doing it right.
The advantage to contributing to an IRA is the tax deferred growth. For example, if you contributed $100 to an IRA and it grew to $105, you wouldn’t be taxed on the growth until you remove that gain from the account. Usually, you would remove those funds when you are retired and there is a good chance you might be in a lower income tax bracket.
Other ways to save for retirement: Life insurance and annuities
There are also ways to use life insurance and annuities to help fund your retirement. Like the IRA contributions above, it’s a good idea to get some advice here from a financial planner and CPA. Some annuities even have lifetime income options available that allow you to predict your income stream in retirement.
By using life insurance or an annuity, you could set aside assets that could grow tax deferred (much like the IRA above). In retirement, your income tax bracket could be lower than it is when you are working, so those withdrawals from your IRA account might be taxed at a lower rate.
Other ways to save for retirement: Real estate
Some invest in real estate as a way to increase their assets in retirement. Rental property purchases are very common, and can even produce an income stream in retirement. Some might find the management side of the rental property a headache, so management companies can be hired to take care of the day to day needs of tenants and properties.
The property could appreciate in value and could be sold in retirement, or the income stream could be used as part of a retirement income plan.
Other ways to save for retirement: Start a business
This one might be less common, because it might take a bit of set up and require a good portion of your time, at least early on. You could build the business and sell it when you are close to retirement, or possibly retire and start running that business full time.
There are also a few tax benefits that could be used by business owners. Check with the CPA or tax professional on those before you start.
These are just a few ways to help you accumulate assets in retirement. Your financial advisor and CPA can work together to figure out which option might be best for you. If you have other ideas or would like to hear more about any of the ideas above, fill out the form below and we will be glad to help.