The Next Step in Your Financial Growth
Maxing out your 401(k) is a big milestone. It means you’re prioritizing your future, taking advantage of tax benefits, and building long-term wealth. But now that you’ve hit the limit, where do you put your next dollar?
The answer isn’t the same for everyone. The best next step depends on your goals, your values, and the kind of financial flexibility you want in your life.
Do you want:
- More tax efficiency to reduce what you owe each year?
- A way to retire before 59½?
- Passive income streams outside of the stock market?
- Liquidity for major life events—funding your kid’s college, starting a business, or taking a sabbatical?
Your 401(k) is a great foundation but building real wealth means diversifying beyond it. Let’s break down your options so you can prioritize based on your goals.
1. First, Revisit Your Goals
Your money should work for you, not just sit in accounts because “that’s what you’re supposed to do.” Before choosing where to invest next, ask yourself:
- What does financial freedom look like for me? (Retiring early, working less, traveling more?)
- How important is liquidity? (Do I want money accessible before retirement age?)
- Do I want to reduce my tax burden? (Should I prioritize tax-free or tax-deferred growth?)
- What’s my risk tolerance? (Am I open to real estate or alternative investments?)
Once you’re clear on why you’re investing, you can confidently decide where to put your money next.
2. Use Tax-Advantaged Accounts Beyond Your 401(k)
Health Savings Account (HSA): The Most Underrated Investment Account
If you have a high-deductible health plan, an HSA isn’t just for medical expenses—it’s an investment vehicle with triple tax benefits:
- Tax-deductible contributions (lowers taxable income)
- Tax-free growth (invest like a Roth IRA)
- Tax-free withdrawals for medical expenses at any age
Pro Tip: If you can afford it, pay for medical expenses out of pocket and let your HSA grow tax-free for decades.
2025 Contribution Limits: $4,300 (individual), $8,550 (family)
Mega Backdoor Roth: Max Out Tax-Free Growth
If your employer allows after-tax 401(k) contributions with Roth conversions, you can contribute up to $70,000 (including employer match).
- Why it’s powerful: Your money grows tax-free, and you can withdraw it tax-free in retirement.
- Check with HR—not all employers offer this option, but if yours does, it’s a game-changer.
Backdoor Roth IRA: Get Around Income Limits
If you’re over the income limit for a Roth IRA, you can still contribute via a Backdoor Roth:
- Contribute to a Traditional IRA (after-tax dollars).
- Convert it to a Roth IRA (pay taxes on gains, but future growth is tax-free).
Important Note: This strategy works best if your Traditional IRA balance is $0 before making the contribution. Otherwise, it triggers the pro-rata rule, which complicates the accounting for pre-tax and post-tax money.
Additionally, be sure to file IRS Form 8606 to report the nondeductible contribution to your Traditional IRA when filing your taxes.
3. Build a Taxable Investment Account (For Liquidity & Early Retirement)
Your 401(k) is locked up until 59½ which can limit your access to funds if you want to retire early or need flexibility before traditional retirement age.
A brokerage account gives you:
- Unlimited investing potential (no contribution limits)
- Liquidity (withdraw funds whenever you want)
- Tax-efficient strategies (long-term capital gains tax rates, tax-loss harvesting)
A taxable account fills the gap between now and retirement, giving you financial flexibility to make life decisions on your terms.
4. Diversify Outside of Stocks (Real Estate & Alternative Investments)
Most high-income earners are overexposed to the stock market. If you want to hedge against volatility and build alternative income streams, consider:
Passive Real Estate Investments
- REITs (Real Estate Investment Trusts): Own real estate without being a landlord.
- Syndications & Private Real Estate Funds: Pool your money with other investors for high-value properties.
- Short-Term Rentals: If you’re open to ownership, this can create cash flow and appreciation.
Real estate offers income, appreciation, and tax advantages—diversifying your wealth beyond market fluctuations. However, not every real estate investment is the right fit for everyone. The best strategy depends on your goals, risk tolerance, and how hands-on you want to be. Before diving in, make sure it aligns with your broader financial plan.
5. Optimize Tax Planning to Keep More of What You Earn
Tax strategy is just as important as investing strategy—because no matter how much you make, what you keep is what truly builds wealth.
At Truly Aligned, we help clients implement:
- Tax-efficient withdrawal strategies – Balancing taxable, tax-deferred, and tax-free accounts to minimize lifetime tax liability.
- Charitable giving & donor-advised funds – Using strategic giving to reduce taxable income while supporting causes you care about.
- Business & real estate tax strategies – Leveraging deductions, depreciation, and tax structures to keep more of your earnings.
For high-income professionals, the biggest wealth leak isn’t bad investments—it’s unnecessary taxes. Without a proactive tax strategy, you could be overpaying by tens of thousands of dollars per year—money that could be compounding, funding your lifestyle, or accelerating your financial freedom.
A tax strategy isn’t just about saving money this year—it’s about maximizing every dollar you earn over time.
Your Next Steps: Prioritize & Diversify Based on Your Goals
Maxing out your 401(k) isn’t the final step—it’s the starting point. Now, it’s about building a diversified strategy that aligns with your life goals.
- Want tax-free growth? Prioritize a Mega Backdoor Roth or HSA.
- Want liquidity before retirement? Build up a taxable brokerage account.
- Interested in diversification? Explore real estate or alternative investments.
- Hate paying taxes? Optimize your tax strategy to keep more of what you earn.
Your financial plan should be as flexible and dynamic as your life.
FAQs
- Should I max out my 401(k) before investing elsewhere?
Yes, but only up to a point. If your employer offers a match, maxing it out is a no-brainer—it’s free money. Beyond that, it depends on your goals and tax situation. If you want more liquidity or tax-free growth, you may want to prioritize an HSA, taxable brokerage, or a Mega Backdoor Roth if your plan allows it.
- Is a taxable brokerage account worth it if it’s not tax-advantaged?
Absolutely. Unlike retirement accounts, a taxable brokerage account has no contribution limits, meaning you can invest as much as you want. It also allows for tax-efficient strategies, such as long-term capital gains rates and tax-loss harvesting, while providing full flexibility since you can access your money at any time without early withdrawal penalties. If you plan to retire early or need liquidity before 59½, a taxable brokerage account is an essential part of your wealth strategy.
- How do I know if my employer offers a Mega Backdoor Roth?
The best way to find out is to check with your HR department or review your benefits portal. Your 401(k) plan must allow after-tax contributions and either in-plan Roth conversions or the ability to roll funds into a Roth IRA. If your employer offers this feature, it’s one of the most powerful ways to build tax-free wealth beyond your standard 401(k) contributions.
- Is real estate a good investment if I don’t want to manage properties?
Yes, and you don’t have to be a landlord to benefit from real estate. Passive investment options like REITs allow you to own real estate without property management, while syndications and private real estate funds let you invest in large-scale properties alongside other investors. Real estate provides diversification, passive income, and tax benefits, but it’s important to ensure it aligns with your financial goals and risk tolerance before diving in.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. LPL Financial representatives offer access to Trust Services through The Private Trust Company N.A. an affiliate of LPL Financial. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through The Wealth Consulting group, a registered investment advisor. The Wealth Consulting group, WCG Wealth Advisors and Truly Aligned, INC are separate entities from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.