In 2018, you can contribute up to $5,500 to a Roth IRA if you’re under 50, or $6,500 if you’ve reached that milestone. For some, it may take all year to hit that target. But, for others, they’ll max out their contributions before the calendar hits 2019.
If you’re in the latter category, you’re likely wondering what you should do once your Roth IRA is maxed out. After all, you’ll probably have a little extra cash in your pocket until you can start contributing again.
To help you plan your next move, here are some things you can do after maxing out your Roth IRA.
Contribute to Your Employer-Sponsored Plan
If you currently have a 401(K), 403(B), or 457 plan through your employer, then work to max out your account. For 2018, you can contribute up to $18,500 if you are under 50 ($24,000 if you are 50 or older), so you may have room there.
This approach allows you to direct more dollars to your retirement savings, which is generally a smart move. Plus, if the additional funds qualify for a match from your employer, you can bolster your savings even more.
Increase Your Emergency Savings
Typically, you should have a minimum of 3 to 6 months of living expenses stashed in an emergency fund. If your savings doesn’t cover that, consider adding more into this account after you max out your Roth IRA.
By keeping a healthy emergency fund, you protect yourself against the unexpected. For example, you’ll be better able to manage a drop in income, medical emergency, or similar situation.
While an emergency fund isn’t glamorous, it is a necessity if you want to remain financially secure.
Pay Down High-Interest Debt
If you have high-interest debt, your next move after maxing out your Roth IRA could be paying it down. Since you have spare cash available, you might as well make it work for you. Every extra payment reduces the amount of interest you’ll pay over time, so you could experience substantial savings.
What counts as “high-interest” is often a personal decision. If you have a debt with an interest rate that makes you uncomfortable, then you could say that it qualifies.
Invest through a Brokerage Account
Even if you hit the Roth IRA contribution limit, that doesn’t mean you can’t invest. Putting money in a taxable brokerage account allows you to keep investing without the restrictions associated with retirement accounts.
There are a lot of reputable companies to choose from as well as do-it-yourself apps. How much you’ll need to open an account varies, so research your options and see if you’ll have enough to get started.
If you already have a brokerage account, then consider directing the funds there.
Ultimately, you have some choices on what to do after you max out your Roth IRA. However, those above are definitely worth exploring if you want to make sure the extra money works for you and isn’t just wasted.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals