Originally published August 2016. Last updated March 2026.
If you’re already maxing out your 401(k) at $23,500 and your IRA at $7,000, congratulations. You’re ahead of most people. But you might want to save more. Here’s how.
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1. Backdoor Roth IRA
If your income exceeds the Roth IRA limit ($150,000 single, $236,000 married in 2025), you can still get money into a Roth through the “backdoor” strategy:
- Contribute $7,000 to a non-deductible traditional IRA
- Convert it to a Roth IRA shortly after
There’s no income limit on conversions. The tax on the conversion is minimal if the traditional IRA had little to no growth between contribution and conversion.
Watch out for the pro-rata rule: If you have other pre-tax traditional IRA balances, the IRS treats all your traditional IRAs as one pool. You’ll owe taxes on a proportional share of the conversion. Solution: roll any existing pre-tax IRA balances into your 401(k) first, leaving only the non-deductible contribution to convert.
2. Mega Backdoor Roth (If Your Plan Allows It)
Some 401(k) plans allow after-tax contributions beyond the $23,500 employee limit, up to the total $70,000 combined limit. If your plan allows this AND permits in-plan Roth conversions or in-service distributions, you can:
- Make after-tax contributions to your 401(k) (above the $23,500 pre-tax/Roth limit)
- Immediately convert those after-tax contributions to a Roth
This can let you put $30,000-$40,000+ into a Roth account each year, way beyond normal Roth IRA limits. Not all plans offer this, so check with your plan administrator.
3. Health Savings Account (HSA)
If you have a high-deductible health plan, an HSA is arguably the best tax-advantaged account available:
- Contributions are tax-deductible (or pre-tax through payroll)
- Growth is tax-free
- Withdrawals for qualified medical expenses are tax-free
That’s a triple tax advantage. No other account type offers this.
2025 HSA contribution limits: $4,300 for individuals, $8,550 for families. If you’re 55 or older, add $1,000.
Pro tip: if you can afford to pay medical expenses out of pocket, let your HSA grow invested for years. After age 65, you can withdraw HSA funds for any purpose (not just medical) with no penalty — you’ll just owe income tax, like a traditional IRA. For medical expenses, it’s always tax-free.
4. Taxable Brokerage Account
No contribution limits. No income limits. No withdrawal restrictions. A taxable brokerage account doesn’t have the tax advantages of retirement accounts, but it offers complete flexibility.
Tax-efficient strategies for taxable accounts:
- Hold investments for over a year to qualify for long-term capital gains rates (0%, 15%, or 20% depending on income)
- Use index funds and ETFs with low turnover (fewer taxable events)
- Harvest tax losses to offset gains
- Place high-growth assets here and bond/dividend investments in tax-deferred accounts (asset location strategy)
5. Cash Balance Pension Plan (For Business Owners)
If you own a business and have high income, a cash balance plan can let you contribute $100,000-$300,000+ per year on a tax-deductible basis, depending on your age. These are defined benefit plans and require actuarial setup and annual funding, so they’re not cheap to maintain. But for high-earning professionals and business owners in their 50s, the tax savings can be substantial.
FAQ
In what order should I fund my accounts?
Generally: 1) 401(k) up to employer match, 2) HSA if eligible, 3) Roth IRA or backdoor Roth, 4) Max out 401(k) to $23,500, 5) Mega backdoor Roth if available, 6) Taxable brokerage. Adjust based on your specific tax situation and goals.
Is a taxable account really worth it if I’m already saving in retirement accounts?
Yes. It gives you liquidity and flexibility that retirement accounts don’t. Need money before 59 and a half? Taxable accounts have no penalties or restrictions. Planning for early retirement? Taxable accounts bridge the gap.
How much should I save total?
Financial planning rule of thumb: save 15-20% of gross income for retirement. If you started late, aim higher. If you’re targeting early retirement, 30-50%+ of income is common in that community.
Schedule a free 20-minute consultation to build a savings strategy that goes beyond the basics.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
