Ask a CFP: ‘I’ve Maxed Out My Retirement Account. What Can I Do to Save More?’

Ask a CFP: ‘I’ve Maxed Out My Retirement Account. What Can I Do to Save More?’

In our “Ask a CFP” Q&A series, we cede the floor to a Certified Financial Planner™ who will address some of the trickiest money topics out there.

Today, Sarah Maskill, a CFP® and president of Financial Answers, LLC, in Somers, Conn., discusses potential ways you can continue to build up your nest egg savings once you’ve maxed out your standard retirement accounts.


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“If you’ve contributed fully to your employer-sponsored 401(k) and a Roth IRA in a given year, then you’ve laid an impressive foundation for retirement.


But that doesn’t mean work on your nest egg is finished.

There are other strategies you can pursue that can help you maintain your current lifestyle well into your golden years—and maybe even provide the extra funds needed to buy that dream lake house.

Sarah_MaskillWhy So Many People Ask This Question Increased life expectancies mean many Americans face a longer retirement. According to the Social Security Administration, if a man reaches the age of 65, he can now expect to live to 84. For a woman who turns 65, her life expectancy ticks up to 87.

That kind of two-decade retirement calls for a sizable nest egg.

Meanwhile, a decline in pension plans and Social Security’s potential shortfall are shifting more of the financial burden onto the individual retiree.

So it’s not surprising that a 2015 survey from the Employee Benefit Research Institute found that 36% of Americans are only ‘somewhat confident’ that they’ll have enough money to live comfortably during retirement.

Given these facts, it’s natural to wonder whether maxing out dedicated retirement accounts is enough—and what else you can possibly do to bolster your savings.

What I Tell Them Once your income reaches a certain level ($131,000 if you’re single, and $193,000 if you’re married), you become ineligible for a Roth IRA. So if you don’t qualify for income reasons, it’s worth exploring a nondeductible IRA.

Regardless of your income, you can invest up to $5,500 of after-tax money in a nondeductible IRA each year, which grows tax-deferred—making it a powerful tool for long-term investing.

When you retire and want to access those funds, you’ll owe taxes on any investment earnings. But at that point, as a retiree with much less income, you’ll likely fall into a lower tax bracket.

Beyond that, you could also invest for retirement through a brokerage account.

For some people, index funds could be an attractive alternative to picking individual stocks and bonds. These funds aim to replicate the returns of an index, such as the Dow Jones industrial average or the S&P 500.

One way you can build an index-based portfolio is with ETFs, which is short for exchange-traded funds. ETFs differ from typical stocks in that one ‘share’ can consist of hundreds of stocks and bonds.

As with a stock or bond, you may incur brokerage fees, but an added perk of ETFs is that they typically carry lower annual management fees compared to conventional mutual funds.

And as you inch closer to retirement, you can consider transitioning your portfolio to become more conservative.

One way to do this is to invest in a balanced fund, which rebalances your portfolio annually to maintain a set allocation of stocks, bonds, and other investments. And the more conservative the balanced fund, the more likely it would be weighted toward fixed income—such as bonds—to minimize volatility. Balanced funds are available as ETFs or mutual funds.

Whichever type of fund you choose, if you receive capital gains distributions, dividends from any of the stocks, or interest from any of the bonds, you’ll owe taxes on them that same year if they are in a brokerage account.

But increases in the value of your equities or bonds—say, the stock you purchased for $20 a share rises to $25—aren’t taxed until you sell them, at which point you’ll pay capital gains taxes of up to 20%. Trading shares of a mutual fund or ETF can also generate tax consequences.

If you're in a higher tax bracket, you can also consider municipal bonds, also known as ‘munis.’ They’re vehicles for lending money to a state, county or town while earning interest that may be exempt from federal taxes. One cost-effective way to do this is through a low-fee municipal-bond ETF, keeping in mind that ETFs can also be tax efficient.

Something else to keep in mind is that munis from the state in which you reside may come with a special advantage: You typically won’t owe state taxes on the interest you earn.

Bottom Line You can take advantage of many retirement savings opportunities beyond 401(k)s and IRAs, including such familiar investment vehicles as stocks, bonds, ETFs and mutual funds.

A nondeductible IRA might work well for you, too.

And depending on your age and comfort level, there are other options that you can also consider with guidance from a financial adviser, like a CFP®, who can help steer you in the right direction.”

RELATED: 6 Signs You May Need to Revisit Your Retirement Plan

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. LearnVest, Inc., is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.


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