“I’m Maximizing My 401(k)…Where Should I Invest Next?”

As a financial advisor, I often hear this question from higher-income earners: “I’m already contributing the maximum to my 401(k); what should I do next?” If this sounds like you, congratulations—you’re already doing a great job prioritizing retirement savings.

For context, the 401(k) contribution limit for 2025 is $23,500 (or $31,000 if you’re age 50+ with catch-up contributions). To reach this limit, someone earning $200,000 would need to save roughly 11.5% of their income—a significant step in building long-term wealth. But once you hit that cap, it’s important to know where else to direct your hard-earned dollars for maximum efficiency and growth.

Here are several options to consider:

1. Mega Backdoor Roth IRA

If your 401(k) plan allows for after-tax contributions, you could take advantage of the mega backdoor Roth. This strategy lets you contribute up to the combined 401(k) plan limit of $70,000 (or $77,500 with catch-up contributions) in 2025.

Here’s how it works: You make after-tax contributions to your 401(k), and if permitted, perform an in-plan conversion to move those funds into a Roth 401(k). Once converted, your earnings grow tax-free. Not all 401(k) plans offer this feature, so check with your employer to see if it’s an option.

2. Backdoor Roth IRA

This strategy allows high earners who exceed the income limits for Roth IRA contributions to still get money into a Roth IRA. It involves contributing to a non-deductible traditional IRA and then converting those funds to a Roth IRA.

Caution: Make sure you don’t have any pre-tax IRA balances (e.g., traditional or SEP IRAs), as the IRS aggregation rule could make part of your conversion taxable.

3. Spousal IRA

Even if your spouse doesn’t work, you can contribute up to $7,000 annually to an IRA on their behalf (assuming you meet the income requirements). This could be a traditional or Roth IRA, depending on your household’s income and eligibility. It’s a great way to double down on retirement savings.

4. Taxable Brokerage Account

A taxable brokerage account is one of the most versatile tools for high-income earners. Unlike retirement accounts, there are no contribution limits, and you have full flexibility with withdrawals.

Investments held for over a year benefit from long-term capital gains tax rates, which are typically lower than ordinary income tax rates (ranging from 0-20%). However, keep in mind that dividends, interest, and realized capital gains are taxable annually. This account is ideal for building wealth while keeping funds accessible for medium-term goals.

5. Save for a Home Down Payment

With higher mortgage rates, saving at least 20% for a down payment is more critical than ever. A larger down payment helps you avoid private mortgage insurance (PMI), reduces your loan balance, and may qualify you for better interest rates.

If homeownership is a goal, consider setting aside funds in a high-yield savings account or a conservative investment strategy to preserve capital while earning a bit of interest.

6. Investment Properties

Real estate investing can be a powerful way to build wealth. Whether you’re interested in long-term rentals, short-term rentals (e.g., Airbnb), or flipping properties, the initial down payment is usually 15-20%.

This type of investment requires due diligence. Analyze cash flow, maintenance costs, and market conditions to ensure your investment aligns with your financial goals.

7. Alternative Investments

If you’re an accredited investor (earning $200,000+ annually or having $1 million in investable assets), you can explore private equity, private credit, real estate investment trusts (REITs), and other alternative investments.

These investments often offer the potential for higher returns but come with risks, such as illiquidity (your money may be tied up for years), lack of transparency, and higher fees. They can be a valuable diversification tool, but proceed with caution and consult a financial advisor.

8. College Savings Plans

For parents, saving for college can be a top priority. A 529 plan allows you to save and invest for education expenses while offering potential state tax benefits. Some states let you deduct contributions, while others offer superior investment options.

Alternatively, you could consider custodial accounts (UTMA/UGMA), which transfer ownership to your child when they reach adulthood, offering flexibility for expenses beyond education.

Where Will You Save Next?

Maximizing your 401(k) is a fantastic milestone, but it’s just the beginning. From tax-advantaged accounts like a mega backdoor Roth or spousal IRA to flexible options like a brokerage account or real estate, the right next step depends on your goals, risk tolerance, and timeline.

By diversifying your savings and investments, you can build a robust, tax-efficient plan that aligns with your financial aspirations. Ready to discuss your options? Let’s connect and map out the best strategy for your future.

Joseph Stabile is a Registered Representative of and offer securities and investment advisory services through MML Investors Services, LLC. Member SIPC. Supervisory Office: 2 Bala Plaza, Ste 901, Bala Cynwyd, PA 19004. Tel: 610.766.3000

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