Maxed Out Your IRA? Here Are 2 Other Places You Can Invest

Some people opt to save for retirement in an individual retirement account (IRA) despite having access to a 401(k) plan through an employer. But in many cases, people open IRAs because there's no 401(k) they can participate in.

Traditional IRAs and 401(k)s work similarly in that contributions go in tax-free. So if you put $3,000 into one of these accounts, the IRS won't tax you on $3,000 of income that year. Both accounts also offer tax-deferred investment gains. This means you don't pay taxes on profits in your account until you take withdrawals.

IRAs, like 401(k)s, come with a maximum contribution limit that can change from one year to the next. In 2023, IRAs max out at $6,500 for savers under age 50 and $7,500 for those 50 and over.

For many people, hitting these limits is a big challenge. But if you happen to be in a fortunate enough position to be able to invest beyond $6,500 or $7,500 for retirement, then you may be eager to find a good home for that extra money.

For the sake of this discussion, let's assume you don't have access to a 401(k) plan, because if you did, that would be a pretty obvious choice. Here are a couple of other options you can consider for investing money for retirement once you've maxed out your IRA contributions for the year.

1. A taxable brokerage account

The downside of putting money into a regular brokerage account is that you don't get a tax break on your contributions. What you do get, however, is an account you can invest in with no restrictions. You can withdraw money at any time, and you don't have to stick to a specific annual contribution limit.

If you happen to have an extra $5,000 a year beyond what your IRA will allow you to put in, you can dump that money into a brokerage account. The same holds true if you have an extra $25,000 a year.

Now, you may be thinking, "Won't I get slammed with taxes if I put money into a regular brokerage account?" And the answer is that yes, you do need to be mindful of taxes. But one thing you can do to minimize any tax hit you might face is to make sure to hold investments for at least a year and a day before selling them. If you do so, you'll put yourself in the long-term capital gains category when you sell investments at a profit.

With long-term capital gains, your tax rate on your profit is either 20%, 15%, or 0%, depending on your income. With short-term gains, which apply to investments held for a year or less, it can be anywhere from 10% to 37%.

2. An HSA

One reason so many people like funding IRAs is that they get a tax break in the process. A health savings account, or HSA, will give you similar benefits.

An HSA is a savings plan that lets you invest your money for near-term and future medical expenses. HSA contributions go in tax-free like those made to a traditional IRA. Investment gains in an HSA are also tax-free, as are withdrawals, as long as that money is used to cover qualified medical expenses.

If you take an HSA withdrawal for non-medical purposes, you'll be penalized. But those penalties go away at age 65.

At that point, you can withdraw from an HSA for any reason without penalty -- though non-medical withdrawals will be subject to taxes like traditional IRA withdrawals are. For this reason, an HSA can easily serve as a backup retirement account.

The only catch, however, is that your health plan needs to conform to certain rules for you to be eligible for an HSA. This year, you can only contribute to an HSA if your health insurance plan has an individual deductible of $1,500 or more, or a family deductible of $3,000 or more. Your plan must also have an out-of-pocket maximum of $7,500 (or less) for individuals or $15,000 (or less) for families.

Like IRAs, HSAs have annual contribution limits. This year, the maximum is $3,850 for self-only coverage or $7,750 for family coverage. But that still gives you another place to put your money where there are tax benefits to reap.

If you've maxed out your IRA and still have money to invest for retirement, you're in a great spot. Consider a taxable brokerage account or HSA to boost your long-term savings beyond what your IRA allows for.