What should you do after maxing out your 401(k)?
You've filled the obvious account and there's still money left over. The order you fill the next ones in is worth real money.
You're contributing the maximum to your 401(k), you're capturing the full employer match, and there's still surplus at the end of the year.
This is a good problem, and it's where a lot of high earners stop optimizing. The money goes into a brokerage account by default, or worse, into cash, and stays there.
The order you fill the next accounts in is worth real money over twenty years.
The short answer. Roughly this order: capture the full employer match, then a health savings account if you have access to one, then a backdoor Roth, then a mega backdoor Roth if your plan permits it, then an ordinary taxable brokerage account. Deferred compensation sits alongside all of it.
| Where the money goes | Tax treatment | The constraint |
|---|---|---|
| Employer match, in full | Pre-tax, plus money you would otherwise forgo | Front loading can switch the match off unless the plan trues up |
| Health savings account | Untaxed going in, growing, and coming out for healthcare | Needs a qualifying high deductible plan, and closes at Medicare |
| Backdoor Roth | After-tax in, then tax free growth and qualified withdrawals | The pro-rata rule, if you hold any pre-tax IRA money |
| Mega backdoor Roth | The same, in far larger amounts | Your plan has to allow both after-tax contributions and the conversion |
| Deferred compensation | Income moved to a later, possibly lower, year | An unsecured claim on your employer, and strict election deadlines |
| Taxable brokerage | Preferential long term rates, step up in basis at death | No shelter from tax on income earned along the way |
Each row is explained below.
Confirm the obvious ones are actually full.
Two things get missed even by people who think they've maxed out.
The match, in full. If your contributions are front loaded and you hit the annual limit in September, some plans stop matching for the rest of the year. Check whether yours trues up. If it doesn't, spreading contributions across twelve months can be worth thousands.
Catch-up contributions. From age 50 the limit rises. Some plans now offer a further increase in a narrow age band. Every one of these limits is reset each year, and the IRS publishes the current figures along with the rules specific to 401(k) plans. Check those rather than the numbers you remember.
The HSA is the most tax-advantaged account you can access.
A health savings account, or HSA, is available if you're on a qualifying high deductible health plan. It's the only account anywhere where the money goes in untaxed, grows untaxed, and comes out untaxed when spent on healthcare. The IRS sets out eligibility, limits, and what counts as a qualified expense in Publication 969.
The move most people miss: don't spend it. Pay current medical costs from cash flow, let the HSA invest and compound, and use it for healthcare decades later. It becomes a dedicated fund for the cost that worries people most, which we cover in what does healthcare actually cost in retirement.
You can't contribute once you're enrolled in Medicare, so the window is while you're still working.
The backdoor Roth.
Above certain income levels you can't contribute to a Roth IRA directly. The backdoor Roth is the well established workaround: put money into a traditional IRA without claiming a deduction for it, then convert that money to Roth. You end up where the income limit was meant to stop you.
One thing determines whether this is clean or messy. If you hold any other pre-tax IRA money, the conversion is taxed proportionally across all your IRA balances rather than just the new contribution. That's the pro-rata rule, explained in Publication 590-A, and it's worth understanding before you start, because a large rollover IRA sitting in the background can make the whole exercise expensive.
There are ways to address that, including rolling the pre-tax balance into an employer plan if it accepts one. It needs sequencing rather than improvisation.
The mega backdoor Roth, if your plan allows it.
Some 401(k) plans permit after-tax contributions well beyond the standard limit, plus either an in-plan Roth conversion or in-service withdrawals.
Where it exists, this is the single largest tax-advantaged opportunity available to a high earner, and the amounts involved are far greater than the backdoor Roth.
Two conditions. Your plan documents have to allow both the after-tax contributions and the conversion mechanism. And you need surplus cash flow to fund it, because these are after-tax dollars.
Most people don't know whether their plan allows it. It's worth one call to find out.
Deferred compensation.
Deferred compensation is an arrangement where you agree to be paid part of your income in a later year instead of now. If your employer offers one, you can push income out to a year after you stop working, when your tax rate may be lower.
The trade is real and worth stating plainly. Deferred compensation is generally an unsecured promise from your employer. If the company fails, you're a creditor, not an account holder.
So the question isn't only tax rates. It's how much of your future you want tied to one company's balance sheet, on top of your salary, your bonus, and any equity you already hold. See what to do when one stock is too much of your portfolio.
Election deadlines are strict and usually fall well before the year you're deferring. Missing one costs you the option entirely.
The taxable account is not a consolation prize.
Once the sheltered accounts are full, a plain brokerage account has real advantages that get overlooked.
It's completely flexible, with no age restrictions or penalties. Long term gains are taxed at preferential rates. It's the best source for charitable giving, because appreciated shares can be donated directly. And at death it receives a step up in basis, meaning the recorded purchase price resets to the value at that point, so a lifetime of growth is never taxed. The IRS explains how basis is determined in Publication 551.
What matters is what goes in it. Holdings that generate ordinary income belong in sheltered accounts where possible; growth-oriented holdings are more efficient here. See how to build a portfolio you can actually stick with.
Nothing here sits on its own.
Filling accounts isn't a standalone exercise. Which accounts you fill now decides how much flexibility you'll have later, because retirement income planning is largely about having money in more than one tax treatment to draw from.
Fill only pre-tax accounts for twenty years and you arrive at retirement with a single lever. Build across pre-tax, Roth, and taxable and you arrive with a choice, which is where most of the value in retirement planning actually comes from.
Where to start.
- Confirm your match is being captured in full, including whether the plan trues up.
- Ask HR two questions: does the plan allow after-tax contributions, and does it allow in-plan Roth conversions or in-service withdrawals?
- Check whether you hold pre-tax IRA money that would complicate a backdoor Roth.
- If deferred compensation is on offer, note the election deadline now.
Contribution limits, income thresholds, and plan rules change annually and vary by employer, so confirm the current figures and read your own plan documents.
No two compensation packages are alike, and the right order depends on what your employer actually offers. If you'd like yours mapped out, let's talk.
Cosmos Wealth doesn't provide tax or legal advice, and nothing here is a recommendation for your circumstances. Work with your CPA before making contributions or elections.
Common questions.
- Should I use my HSA to pay current medical bills?
- Generally no, if you can afford not to. Paying today's medical costs from ordinary cash flow lets the HSA stay invested and compound, and it is the only account where money goes in untaxed, grows untaxed, and comes out untaxed when spent on healthcare. Used that way it becomes a dedicated fund for the expense most retirees worry about most.
- What is the pro-rata rule and does it affect my backdoor Roth?
- It affects you if you hold any pre-tax IRA money. The conversion is then taxed proportionally across all of your IRA balances rather than only the new contribution, so a large rollover IRA sitting in the background can make the exercise expensive. Rolling that pre-tax balance into an employer plan that accepts it is one way to clear the path, but it needs sequencing rather than improvisation.
- How do I find out whether my plan allows a mega backdoor Roth?
- Ask HR two questions: does the plan permit after-tax contributions beyond the standard limit, and does it permit either in-plan Roth conversions or in-service withdrawals. You need both. Most people do not know the answer, and where it exists this is the largest tax-advantaged opportunity available to a high earner.
- Is a taxable brokerage account a bad outcome once the sheltered accounts are full?
- No. It is completely flexible with no age restrictions or penalties, long-term gains are taxed at preferential rates, it is the best source for charitable giving because appreciated shares can be given directly, and at death it receives a step up in basis. What matters is which holdings go in it.
- What is the risk in deferred compensation?
- It is generally an unsecured promise from your employer, so if the company fails you are a creditor rather than an account holder. That makes the question broader than tax rates: it is how much of your future you want tied to one company's balance sheet on top of your salary, bonus, and any equity you already hold.
