5 Tips to Invest With a Maxed 401(k)

Kayleigh Kulp

If you're in the fortunate position of maxing out your 401(k) contributions and still having the ability to do more, there are other investment avenues that will allow you to add to your nest egg in the most tax-advantaged way possible.

Experts suggest the following strategies for retirement investors looking to do more to save for retirement:

-- Invest in an annuity.

-- Explore tax-advantaged real estate funds.

-- Make after-tax 401(k) contributions

-- Invest in a college savings plan.

-- Contribute to a health savings account.

[See: 8 Things to Remember When Reviewing Your 401(k).]

Invest in an Annuity

An annuity is an insurance company-issued investment that the investor pays into in order to receive a fixed sum of money for the rest of your life. The goal of investing in an annuity is to receive a guaranteed income later.

There are different types of annuities.

"An annuity can be used in a number of ways; they can be your primary source of retirement income or a supplement to an existing (individual retirement account) or 401(k)," says Dan Kruse, vice president and actuary at Securian Financial in St. Paul, Minnesota.

Unlike other options for retirement investments, annuities are not subject to Internal Revenue Service contribution limits, although certain contracts may have a maximum limit, Kruse adds.

Explore Tax-Advantaged Real Estate Funds

Opportunity zone funds are a new form of investment that allow investors part of corporation or partnerships to defer, reduce and even eliminate capital gains taxes by buying qualified properties for the long term, says Chris Rawley, founder and CEO at Harvest Returns and fund manager of the Sustainable Agriculture Opportunity Zone Fund in Fort Worth, Texas.

Opportunity zones are economically depressed areas designated in 2018 as part of the Tax Cuts and Jobs Act.

"Once tax-free accounts are maxed out, an investment of capital gains into a qualified opportunity zone fund can be appropriate for investors to achieve tax-advantaged growth in their retirement portfolio, as long as they don't need the principal invested for at least 10 years," Rawley says.

There are about 8,700 areas across the country that have been designated as opportunity zones.

Adam Hooper, cofounder and CEO at Oregon-based RealCrowd, a real estate crowdfunding platform, says in the case of qualified fund investments that are held for more than a decade, there will be zero capital gains taxes due on any appreciation over the original investment amount.

"It is important to note that only qualified capital gains can be invested in these programs, but the benefits can be quite meaningful if structured accordingly," he says.

[See: 10 Ways to Maximize Your Retirement Investments.]

Contribute After-Tax Money to a 401(k)

Not all plans allow it, but some employers permit high-income earners to maximize their pre-tax contributions and then contribute after-tax dollars to their 401(k), says Aaron H. Parrish, president of Level Wealth Management in Greensboro, North Carolina.

The maximum combined employee/employer contribution limit is $56,000, or $62,000 if 50 or older. Once they separate service, the after-tax portion of their 401(k) can be rolled into a Roth IRA.

"This is a unique way to maximize your Roth accounts even if you earn too much to contribute to a Roth IRA," Parrish says.

Invest in a College Savings Plan

Paying for a child's college education can greatly impact your nest egg, and a great way to minimize this is to contribute to a 529 college savings plan.

"Each spouse can contribute up to $15,000 for each child so if you have two kids, you can contribute up to $60k annually to their 529 plan," says Greg Mykytyn of Commerce Street Peak Advisors in Dallas.

A 529 plan usually is a savings plan or one that pre-pays tuition at a locked-in price.

[See: 11 Steps to Make a Million With Your 401k.]

Contribute to a Health Savings Account

Health and medical expenses can eat into a retirement account, so a health savings account is a great way to save for current and future medical needs now.

HSAs are allowed for people enrolled in high-deductible health insurance plans.

The balance in an HSA account rolls over to the next year, Mykytyn says.

HSA contributions are tax-deductible, growth is tax-deferred and distributions are tax-free. The money can be used to pay for medical premiums, co-pays other charges, says Dejan Ilijevski, investment advisor and president at Sabela Capital Markets in Illinois.

A couple younger than 55 can contribute up to $7,000, which can be invested in mutual funds. The IRS allows a $1,000 catch-up contribution for couples older than 55, Mykytyn adds.

Kayleigh Kulp is a freelance journalist who also writes or has written for CNBC, The Daily Beast, Afar, the Washington Post, Travel Channel, Travel + Leisure, CNN, Fox Business Network, Wine Enthusiast, The Daily Meal, Los Angeles Times, Bust, AARP and AAA Journey magazines, ABC News, Miami Herald, San Antonio Express-News, Washington Examiner and The Baltimore Sun.