How to Save for Retirement After Maxing Out a 401(k)

FEB 01 | 2021
An older man looking at his laptop.

Maxing out your 401(k) plan is no small feat, but is it enough to ensure a retirement that’s free from financial stress? If you can contribute the limit in employer’s retirement plan, you may also want to find additional ways to pad your retirement and reduce tax liabilities.

Those participating in employer plans usually get a small boost each tax year when the Internal Revenue Service raises the maximum contributions allowed—typically by $500. 

Retirement Plan Contribution Limits

For 401(k), 403(b), most 457 plans, and the Thrift Savings Plan, employees can contribute $19,500 for both the 2020 and 2021 tax years. Employees age 50 and older can add an additional $6,500 to their retirement plans in catch-up contributions.

But even with the IRS raising annual contribution limits, catch-up contributions and employer matches—you may still need to set aside more money. Most people need at least 70-80% of their pre-retirement income to maintain the same lifestyle during retirement. Here are some additional options that may potentially increase your retirement savings.

Individual Retirement Arrangements (IRAs)

Roth or Traditional IRAs offer an additional way to save with some tax advantages. Like retirement plans offered by employers, the IRS sets contribution limits each year.

IRA Contribution Limits

For tax years 2020 and 2021, most individuals under age 50 can save up to $6,000 in an IRA. Those over 50 can contribute another $1,000, giving them a total $7,000 contribution for the tax year.

Traditional IRA withdrawals after 59½ are taxed as current income. But you can deduct your contribution on your income taxes in the year you contribute. With a Roth IRA, you contribute after-tax income. But you can make tax-free withdrawals on the amount you contribute at any time. All withdrawals are tax-free after age 59½ as long as you have held the account for at least five years. Income limitations do apply to Roth IRA contributions.

Roth or Traditional?

Compare IRAs to see which one might be right for you.

Mutual Fund and Brokerage accounts

A taxable account that invests in mutual funds, stocks or bonds may provide cash flow both before and after retirement. One consideration is that taxable accounts don’t have any tax benefits the way 401(k) or IRA accounts do. However, people concerned about taxes may look for tax-efficient investments in this type of account.

Another consideration is diversification. Diversifying your investments among stocks, bonds and cash equivalents helps to spread out risk. In other words, don’t keep all your eggs in one basket. 

Diversification and Age

How you diversify may change over the years. For example, young investors looking to grow returns over time might consider putting more money in stocks, which come with more risk but may also offer higher returns. Investors nearing retirement might consider decreasing risk and less exposure to stock market volatility by putting more into bonds, which may be less risky, but also may have lower returns.


If you’d like a fixed income stream for a period of time, consider an annuity as part of your retirement plan. Annuities are insurance contracts. The insurer will make payments to you at some point in the future—or immediately. Annuities can be purchased through a payment plan or a lump-sum payment, and you can receive payments in a lump sum or over time, depending on the terms of your contract.

Keep in mind that annuity fees may be higher than other investment options. Another drawback may be the ability to access your money. Some annuities come with surrender fees if you want to break the contract early.

Life insurance

Life insurance policies are usually seen as a way to leave money for family after death. But some policies can also be used to build savings for retirement. One such product is permanent life insurance. Premiums you pay go to both your death benefits and a cash account. The money is tax deferred and can be accessed later for retirement. 

Permanent life insurance can be expensive—monthly premiums and initial set-up fees can be costly, so this isn’t necessarily the best option for all savers, but it can add to the savings you have for retirement.

Permanent Life Insurance

Permanent life insurance is insurance that does not expire, such as whole life or universal policies.

Health Savings Accounts

With a Health Savings Account (HSA), you put aside money for current and future health care costs. But you also may be able to invest the money, similar to how you do in a 401(k) and earn interest. The availability to do this and the investment options depend on the custodian of the account.

HSAs are combined with a high-deductible health plan (HDHP). High deductible plans typically have lower premiums than other health plans. However, you need to pay out-of-pocket for doctor’s visits, prescriptions, and other health care costs until the deductible is met. 

HDHP enrollees can open an HSA to save on out-of-pocket costs. Contributing to an HSA has some tax advantages and you can carry over money you don’t use from year to year and earn interest on it. An HSA can also act as an investment account for health care costs in retirement.

HSA Contribution Limits

For 2021, individuals can save $3,600 and families can contribute $7,200. Those over 55 can put an additional $1,000 in an HSA.

Withdrawals for qualified health care costs are always tax-free and penalty-free. At age 65 you can use the money for non-health care expenses and other retirement expenses without a penalty, however non-health care cost withdrawals will be taxed as ordinary income.

Don’t Be Limited by Your 401(k)

You’re not limited to your employer’s plan. If you want to maximize your savings for retirement, there are multiple options that may support your goal of comfortably enjoying your golden years.

Saving for Retirement is a Critical Goal

Let us help you review your options.

Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.

Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

Diversification does not assure a profit nor does it protect against loss of principal.

You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.