WHAT TO DO AFTER YOU MAX OUT YOUR 401(K)?

Are you one of the more than 58 million Americans who use a 401(k) plan to save for retirement? As of the end of 2019, 401(k) plans held more than $6.2 trillion, which accounts for nearly 20% of all retirement assets in the United States.1

A 401(k) can be an effective savings vehicle for a few reasons. First, all growth is tax deferred. You don’t pay taxes on your gains until you start taking distributions from the account. You also may receive employer contributions, which could significantly increase your savings.

While a 401(k) can be an effective savings vehicle, you may need other options in your strategy. In 2020, you can contribute up to $19,500 to a 401(k). That number is increased to $26,000 if you’re age 50 or older.2 If you hit the contribution limit and still want to contribute more money for retirement, you may need to find another vehicle to do so.

Below are three savings vehicles that could be good options if you hit the max on your 401(k) this year:

Individual Retirement Accounts (IRA)

In addition to your 401(k), you can also contribute up to $6,000 to an IRA in 2020. If you are 50 or older, you can contribute an additional $1,000 to an IRA, bringing your total potential contribution to $7,000.3.

There are a few different types of IRAs, but the two most popular are the traditional and the Roth. In a traditional IRA, you make upfront contributions that are potentially tax-deductible. Your assets can then grow on a tax-deferred basis, just as they would in a 401(k). All future withdrawals are taxed as income.

In a Roth, your contributions aren’t deductible, but your withdrawals in the future are potentially tax-free. Unfortunately, not everyone can contribute to a Roth IRA. If you are single and your income is more than $139,000 or a joint-filing couple with income of more than $206,000, you cannot contribute to a Roth IRA.3

A financial professional can help you determine which type of IRA is right for you.

Brokerage Account

Another option is to simply open a taxable brokerage account. With these, you don’t get tax-deferred growth, deductible contributions, or any of the other tax benefits you might find with an IRA or a 401(k).

However, you do get a great deal of flexibility. In most qualified accounts, you can’t take a withdrawal before age 59 ½ without facing an early-distribution penalty. That’s not the case with a brokerage account. You can take withdrawals anytime you like, which could come in handy if you’re forced to retire early or have a costly emergency.

Again, a financial professional can help you determine if this is the right path for you and help you implement an investment strategy.

Insurance-Based Vehicles

Insurance may not be the first thing that comes to mind when you think about saving for retirement. However, there are insurance-based vehicles that can make effective retirement savings tools.

Annuities are insurance-based products that allow you the opportunity for growth while also benefiting from some risk-protection features. Some annuities offer guaranteed* minimum values, so you won’t lose money due to market declines. Others offer guarantees* of future income, so you can protect your cash flow in retirement.

Ready to compliment your 401(k) with other savings vehicles? Let’s talk about it. Contact us today at Oliver Asset Management. We can help you develop and implement a strategy. Let’s connect soon and start the conversation.

1https://www.ici.org/faqs/faq/401k/faqs_401k

2https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500

3https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500

Advisory services offered through Change Path, LLC a Registered Investment Adviser. Change Path, LLC and Oliver Asset Management are unaffiliated entities.

*Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. The information contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20040 – 2020/4/28