Maxing out retirement-fund contributions

Many thrifty people are searching for investment options for cash now that they’ve made the maximum allowed retirement-fund contributions. Experts have said to invest for retirement for years, and surveys indicate that people are listening. They now are in the position of having made the maximum allowable contributions to their retirement funds and not knowing what to do with the rest of their cash.

An example of good saving

Scott and Amber Rowson of Columbia, Missouri, have contributed the maximums allowed to their tax-deferred retirement accounts. They budgeted strictly enough to contribute the maximum from Scott’s state-job salary and Amber’s self-employment SEP IRA. Their children’s 529 education funds are funded as well. Amber said, “Now that our children’s savings are taken care of and our retirement funds are maxed, we want to know where our money should go . . . over the years we’ve gotten good at squaring away a portion of our earnings and it seems illogical to just stop now.”

Ways to save after retirement accounts are funded

After retirement funds are maxed out, one option is to contribute directly to a Roth IRA. The obvious benefit is withdrawals, post retirement, are tax free and it’s a wonderful way to put away more cash. There is a new change in the rules for a Roth IRA for 2010. This year everyone regardless of income can convert a traditional IRA to a Roth IRA. It isn’t free, as tax payers have to pay income tax on the entire amount converted. The strategy can pay off for people like the Rowsons. They can make the conversion and split the tax liability between 2011 and 2012.

Another option for savings

When it comes to managing cash now that retirement accounts are funded, people also can start investing in taxable accounts. Despite the taxable nature, there are no penalties for withdrawals. The benefit for the Rowsons is that Amber is self-employed and if her business suffers from market fluctuations, she can tap into any her savings whenever she needs to, without additional taxes or penalties.

There’s also life insurance

Another option for the Rowsons, and anyone else wise and thrifty enough to max out their retirement contributions, is to look into alternative investments. The Rowsons’ retirement portfolios are packed with standard stock and bond options so any extra money can go into alternative savings like cash-value life insurance. This is also a way to have tax deferred earnings and liquidity. Amber said, “I like this option because it gives me another safety net if my business slows down or if I decide that I want to do something different in a few years and get stuck in a learning curve.” For someone like Amber, who wants to move into real-estate investing, this could be the most viable option for the family’s future savings.

It’s an enviable thing to have maximized retirement savings

For anyone in the enviable position of having maximized retirement contributions, the question of what to do with cash now is an important one. Depending on a persons’ circumstances, some options are better than others. The best things avid savers can do is to keep up the good work however they can. There are always wise options when it comes to saving for the future.