Many people who have access to a 401 (k) plan through an employer struggle to make use of it. This is because the annual contribution limits for 401 (k) are quite high: $ 19,000 for workers under 50 years and $ 25,000 for workers over 50 years. However, if you have a higher income or a very thrifty lifestyle, you may be able to save more than $ 19,000 or $ 25,000 a year. The question is: where to put the money when it no longer fits into a 401 (k)?
. 1 An HSA
A Health Savings Account (HSA) is a hybrid savings account that you can use to cover funds for retired health expenses (and during your working years). The money you bring in is used tax-free. From then on, you can invest and grow tax-free. In addition, your withdrawals are tax-exempt if used to pay for qualified medical expenses.
To qualify for an HSA, you must be in a high deductible health insurance that is at least $ 1
The downside of HSAs is that they are forced to use this money for healthcare expenditures or otherwise risk a 20% penalty for withdrawing funds for non-medical purposes. Once you are 65 years old, you can use your HSA for some reason. The worst thing is that you are taxed on withdrawals that are not used for qualified medical expenses. But chances are good that you need this money for retired health care. In that case, saving your excess cash in an HSA is a wise idea, especially since you get the same tax credit on your contributions as you would on a traditional 401 (k).
. 2 A Traditional (Non-Taxable) Brokerage Account
The downside of making a deposit into a traditional brokerage account is that you do not receive tax compensation and you are taxed on your investment every year. The top? You have the option to use this money for any purpose. You can keep everything for retirement, or save much of it for your golden years, but you can also access the money to meet other needs or desires that arise along the way. Renovation, holidays or tuition of your children.
. 3 An Annuity
An annuity is a contract between you and an insurance company. In return for a lump sum, the issuer of your pension agrees to pay you a certain amount of money – either a lump sum in the future or a set of payments over time. Because annuities are complex and sometimes involve expensive fees, they are often seen as a last resort for retirement provision, especially as there is no tax credit on financing. However, if you are looking for another earmarked source of retirement and have already exhausted your 401 (k), a pension is worth considering.
If you are fortunate to be in a position to fully exhaust a 401 (k) and save money, it is worth using this money wisely. HSAs, traditional brokerage accounts, and annuities are all viable options to waste additional retirement funds in one way or another.