What to Do After Maxing Out Your Roth IRA Contributions

A Roth individual retirement account (IRA) offers some amazing tax benefits when you invest for retirement. Although you don't receive an upfront tax deduction for your contribution amounts, you get both tax-free earnings growth and tax-free withdrawals when you retire.

However, if you’ve hit the Roth IRA contribution limits and still have cash earmarked for retirement savings, there are other ways to invest it. Let’s explore what to do after maxing out your Roth IRA contributions.

Roth IRA Contribution Limits

Like traditional individual retirement accounts (IRAs), Roth IRAs have a maximum amount that can be contributed yearly, per the Internal Revenue Service (IRS). Unfortunately, the downside to Roth IRAs is that these annual contribution limits are relatively low.

• In 2022, you can contribute $6,000, and if you’re age 50 and older, you can contribute an additional $1,000, called a catch-up contribution, for a total of $7,000.
• In 2023, you can contribute $6,500, and if you’re age 50 and older, you can contribute $7,500, including the catch-up contribution.

Roth IRA Income Limits

Per the IRS, your income must be below a specific threshold for you to contribute the maximum amount allowed per year to a Roth IRA. Once your income hits a certain threshold, the amount you can contribute to a Roth starts to phase out.

If your modified adjusted gross income (MAGI) exceeds the Roth IRA income limits, you’re ineligible to contribute. Here’s how it breaks down:

For example, suppose you’re a 37-year-old single filer with a MAGI of $125,000. You could contribute the full $6,000 to your Roth IRA.

However, if your income rose to $135,000, based on the Roth IRA rules, you’d be limited to contributing a phased-out amount of $2,400. Since you’re still eligible to contribute a combined $6,000 to IRAs for the year, you could put the remaining $3,600 in a traditional IRA.

Below are the Roth IRA income phase-out limits for 2023.

Where to Invest After You Max Out Your Roth IRA

You have several choices for investing once you’ve maxed out your Roth IRA. But if you have a workplace retirement plan such as a 401(k) or 403(b), consider contributing enough to get your full employer match before you fund a Roth IRA. Otherwise, you’re passing on free money.

You may also save toward non-retirement goals, like a down payment on a house or a 529 plan for your child’s education. But if you want to invest more in retirement savings after maxing out your Roth IRA contribution, here are some options.

And yes, you can contribute to both a Roth IRA and Roth 401(k) or 403(b) if you meet the income limits.

Invest in a Spousal IRA

If your spouse doesn’t have taxable income and you file a joint tax return, you can fund a spousal IRA on their behalf. A spousal IRA can be a Roth or traditional IRA. The contribution limits are the same, so if you’re both younger than 50, the maximum contribution is $12,000 combined for 2022 ($13,000 for 2023).

Top Off Your 401(k) or 403(b)

If you contributed enough to get your company 401(k) or 403(b) plan match before maxing out your Roth IRA, consider circling back to contribute unmatched funds.

In 2022, you can contribute up to $20,500 to a 401(k) or a 403(b) ($22,500 in 2023), provided your contribution doesn’t exceed your salary.

If you’re older than age 50, you can make an extra $6,500 catch-up contribution if your plan allows it ($7,500 for 2023).

Make After-Tax Contributions to Your Company Plan

More than 86% of 401(k) plans now offer a Roth option that allows employees to invest after-tax dollars, according to the Plan Sponsor Council of America. If you have this option, you can max out your 401(k) or 403(b) and get the same tax-free growth you get with a Roth IRA. However, if your employer matches part of your contribution, the match will always be made pre-tax.

Invest in Taxable Non-Retirement Accounts

If you've maxed out your Roth IRA and workplace account, or you want the flexibility to withdraw your money whenever you'd like, consider a taxable investment account.

These accounts have no annual limits or early withdrawal penalties. You'll owe taxes on your gains, but you can minimize the bill if you hold securities for more than a year to lock in lower long-term capital gains rates.

The Bottom Line

Maxing out your Roth IRA contribution for the tax year can be a smart move since you can lock in a tax-free source of income in retirement. But you should prioritize getting an employer’s match first if one is available to you because it’s free money.

After you’ve contributed enough to your employer-sponsored plan to earn the full match and maxed out your Roth IRA, you can contribute more to your workplace plan or look into other options, such as a spousal IRA, self-employed retirement plan, or taxable investment account.

Frequently Asked Questions (FAQs)

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