You’ve Maxed Out Your TSP or 401(k) Account. Now What?

You’ve Maxed Out Your TSP or 401(k) Account. Now What?
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A recent Vanguard study found only 12% of participants had maxed out their 401(k) contributions, which are set at $19,500 for 2021 ($26,000 if you are 50 or older). If you are one of the relatively small group of people who has maxed out their Thrift Savings Plan (TSP) or employer-sponsored retirement account, congratulations!


If you’re in this group, you might feel you’ve done enough when it comes to saving for retirement this year. However, if you don’t want to rest on your laurels, here are five ideas for how you can continue to save toward your retirement goals.


[DEC. 2 MOAA WEBINAR: Your TSP and 401(k): What to Do When You Switch Jobs]


1. Open an IRA

Many people don’t realize that they are eligible to contribute to an Individual Retirement Account (IRA) even if they contribute to the TSP or a 401(k), 403(b), or other employer-sponsored retirement savings account.


Like employer plans, IRAs come in two types: Traditional and Roth.


A Traditional IRA is funded with pretax contributions. Your money will grow tax free until you take a withdrawal, and then you’ll pay taxes on your earnings. Roth IRAs come from post-tax dollars, so you won’t save on taxes now, but you’ll be able to take distributions from the Roth tax-free in retirement.


[RELATED: TSP-401k or IRA. Which Is Best for You?]


In both 2021 and 2022, the maximum contribution you can make to all your IRA accounts combined is $6,000 ($7000 if you’re age 50 or older). Roth IRAs do have income limits, while Traditional IRAs may have limits to their tax deductibility.


2. Your Spouse Can Save, Too

If you’re working, your spouse is eligible to contribute to an IRA even if they have no earned income of their own. This is not a joint account: It gives the non-working spouse retirement income in their own name.


Spouses have the same maximum contribution limits and the same choice of Roth versus Traditional IRA. There is no need for spouses to have the same IRA type.


3. Make Sure You Have a Big Enough Emergency Fund

If this past year and a half has taught us nothing else, it’s that we need to be ready for unexpected expenses. The general rule of thumb is three to six months of living expenses, but the “right” amount can vary from person to person, depending on your own household expenses and cash flow. If you’re getting ready to transition out of the military or switch jobs, you might need a larger fund.


Your emergency fund should be kept in a separate, earmarked account that can be accessed if necessary.


[FOR PREMIUM AND LIFE MEMBERS: Download MOAA’s Financial Planning Guide]


4. Save for Education

If you’ve saved aggressively toward retirement and still have money left over, you can consider opening or contributing to a tax-advantaged 529 account. This is an investment account that offers tax benefits when used to pay for qualified education expenses for a designated beneficiary.


You can save for a wide range of educational expenses for your kids, grandchildren, relatives, or even yourself.


5. Open a Non-Retirement Brokerage Account

The same mutual funds and index funds that make up most employers’ 401(k) options can be invested in outside of retirement accounts. For example, the TSP’s C Fund is equivalent to Standard and Poor’s 500 index. The S Fund holds the same securities as the Dow Jones U.S. Completion Total Stock Market Index.


Most investment firms will allow you to open a non-retirement brokerage account for free. There are a handful that offer low or no transaction fees to make online trades.


Employer plans like the TSP and 401(k)s are great choices for retirement savings, but if you are trying to aggressively save and make up for lost time, you may find you need more options for your money. As always, it’s best to consult with a tax professional and a fee-only financial adviser to make sure your savings habits and your retirement goals are in alignment.


The Smart Money’s on MOAA

Making sound financial decisions is not always as simple as we would like. PREMIUM and LIFE members can access MOAA's Financial Planning Guide, as well as speak with a MOAA financial expert for additional assistance.


About the Author

Lila Quintiliani, ChFC®, AFC®
Lila Quintiliani, ChFC®, AFC®

Quintiliani is MOAA's Program Director, Financial and Benefits Education/Counseling. She is a former Army Military Intelligence Officer as well as the spouse of an active-duty servicemember, and worked for over a decade at military installations as a personal financial counselor.