Where to Save Once You’ve Maxed Out Your Retirement Accounts, Episode #60
When it comes to saving and investing for retirement, we all have a certain amount of tax-advantaged saving space available to us through a combination of employer retirement accounts and personal retirement accounts. However, for many physicians there comes a point where you’re maxing out all of these retirement accounts and still have money left over to save and invest, so it’s natural to wonder “What’s next?” in terms of where you should then allocate money. For us, the answer is often a taxable investment account, and in this episode, we explain why.
Outline of this episode
- What's the best place to save and invest after retirement accounts are maxed out? [0:23]
- The drawbacks of a taxable account [2:35]
- Why a taxable account is preferable to cash or doing nothing [5:44]
- The many attractive tax aspects to these accounts [13:01]
- Legacy planning benefits of these accounts [19:26]
- Recap [23:20]
What a taxable account is and how it fits as an option
For those of you who have maxed out your tax-advantaged retirement accounts (and we typically recommend maxing out these accounts first), a taxable account is often the next best option. We'll start out by clarifying the terminology since as with many other areas of personal finance there's no shortage of jargon here. For the purposes of our discussion, we'll refer to it as a taxable account, but you'll also commonly hear it referred to as a brokerage account, a joint account, or an individual account. It's an account that you can open and, unlike a bank account where you earn a set percentage of interest based on the amount of money in the account, with a taxable account you can invest the money in mutual funds, ETFs, stocks, bonds, etc. with the expectation that it will grow over time. Taxable accounts are easy to open and can provide great benefits over time.
The drawbacks of taxable accounts
Obviously, you don’t get the same tax benefits from these accounts that you would from a typical tax-advantaged retirement account. You make contributions to a taxable account with money that’s already been taxed, and you'll pay taxes on any dividends and interest received each year, as well as on gains when selling investments. Money invested here won’t grow as quickly as it would in a non-taxable account.
What to like about taxable accounts
You have the potential to earn a higher return on your investments compared to leaving the money in cash in a bank account. While there's no guarantee that any investment will provide profitable returns, historically money invested in the stock and bond markets (which can be done using a taxable account) has done much better than money held in cash. In addition to providing the opportunity to earn a higher return, taxable accounts also offer excellent flexibility when it comes to your investments and SOME tax benefits in certain situations or with certain types of investments.
Resources & People Mentioned
- Episode #20: The Waterfall of Retirement Savings by Account
- Episode #45: A Deeper Dive on Roth IRA Conversions
- Download our guide: The Toolkit for Optimizing Your Finances as an Employed Physician
- Download our guide: The Financial Checkup
Connect With Trent and Andrew
- Follow on LinkedIn
- Follow on Facebook
Subscribe to The Physician’s Guide To Financial Wellness
on Apple Podcast, Spotify, and Google Podcast