No matter your age or net worth, contributing to a 401(k) and Roth IRA is about more than just saving for retirement–it’s also a financially-savvy way to make the most of your hard-earned money. In addition to reducing your taxable income, those long-term investments will grow over time and help you achieve financial freedom.

How much do you need to contribute in order to max out these accounts, and what other tax-advantaged ways can you strategically invest excess funds? These six strategies are here to help.

How to Max Out Your 401(k) and Roth IRA

Both 401(k)s and Roth IRAs have maximum contribution limits in place that can hold you back from making the full investment that you would like to make toward your retirement. While some of these limits are fairly generous, high-income earners need to know what the upper limits are so that they can make wise decisions regarding the rest of their retirement savings.

A traditional 401(k) allows you to contribute up to $23,000 for 2024. For those age 50 and over by the end of the calendar year, you can make additional catch-up contributions of $7,500 per year.

Eligible individuals can also make use of Roth IRAs and contribute $7,000 annually (plus an additional $1,000 if you are over age 50). However, there are more limits on Roth IRAs than 401(k)s when it comes to your modified adjusted gross income. Single tax filers must have a MAGI of $161,000 or less while married filing jointly filers must have a MAGI of $240,000 or less for the 2024 calendar year.

What to Do After Maxing Out Your 401(k) and Roth IRA

If you have already contributed the maximum amount to both of these accounts, it is time to get a little more creative with the rest of your savings goals. Here are six strategies that help you maximize your earnings while thinking about the future.

Health Savings Accounts (HSAs)

Another way to maximize your earning potential is to invest in a Health Savings Account (HSA) to help cover the cost of qualified medical expenses. The benefits of contribution to HSAs are many: you contribute pre-tax dollars, to grow tax-deferred, with no taxes paid on eligible withdrawals to cover qualified medical expenses.

For 2024, you can contribute up to $4,150 to your HSA as a single individual or $8,300 for a family + $1,000 in catch-up contributions.

529 Plan

Another way you can leave a financial legacy for your family is to help your children pay for higher education with a 529 Plan. These plans are ideal for investing money that you know will be used to cover college expenses because growth is tax-deferred and withdrawals are tax-free. It can even be used to cover K-12 tuition at private institutions.

Backdoor Roth IRA

A backdoor Roth IRA is an excellent way for those with high incomes to contribute to a Roth IRA, even if they exceed the modified adjusted gross income for the year. In this scenario, you would make after-tax contributions to a traditional IRA and then convert that traditional IRA into a Roth IRA. Since the funds are first going to a traditional IRA, investors can circumvent the normal Roth IRA income limitations.

Important: This strategy does come with a unique set of rules and limitations, such as the pro-rata rule and step transaction doctrine. Be sure to check with your CPA or tax professional before executing on this.

Private Investing and Real Estate

If you want the potential for big returns on your money and do not want to expand your portfolio of public securities such as stocks & bonds, private investing is a great way to diversify.

For example, you could try investing in privately-held businesses, but be aware that your money will not be as liquid as it would have been if you invested in publicly-held companies through the stock market. However, this is a great way to diversify your portfolio as well as provide the opportunity to be hands-on with the development of a budding business.

Real estate is a similar investment that you can make for long-term wealth creation. You can own properties that you rent out for significant monthly revenue and take advantage of appreciation that often comes from holding real property in your portfolio. Some savvy investors may also be able to take depreciation write-offs on their taxes.

Bonds and Fixed Income Securities

Not everyone wants to take a risk on long-term investments. Instead, you can keep your money a little bit safer by investing in bonds and fixed income securities. You will get a small payment of interest for investing in bonds with the whole principal returned to you at the end of a specified period.

If you are concerned about accruing a portfolio with excess risk, this is a great way to even out the field.

Charitable Giving

Giving some of your wealth away is a great way to maximize tax deductions. Many investors like the model of the donor-advised fund which allows you to donate your cash, assets, and securities to a 501(c)3 organization. Funds are held until grants are recommended and then given to the charitable organization.

The deduction will be taken in the year that the donation is made, no matter when in the future the funds will be released to the charity of your choosing.

Experience the Confidence You Deserve

Maxing out your 401(k) and Roth IRA is fantastic for your retirement savings, and it’s a financially savvy achievement you should be proud of. And as a high-net-worth individual capable of maximizing those contributions, you have lots of options at your fingertips.

The best path will vary depending on your portfolio and financial situation, so it's crucial to weigh your options before making your next move. If you’re still not sure what to do after maxing out 401(k) and Roth IRA, a financial planner can provide guidance and insight that takes your portfolio to the next level.

Are you ready to start making the most of your income?

You’ve worked too hard to let money steal your freedom, and Consilio Wealth Advisors is here to help. We specialize in working with tech professionals with unique, multi-layered portfolios and compensation structures. We’ll educate you to make empowered decisions so you can make your money work for you – not the other way around. Contact us today to learn more!

DISCLOSURES:

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

All investments include a risk of loss that clients should be prepared to bear. The principal risks of CWA strategies are disclosed in the publicly available Form ADV Part 2A.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Consilio Wealth Advisors, LLC (“CWA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.