What to Do With a Maxed-Out 401(k): A Guide for High Earners in Their 40s and 50s

Figures reflect rules in effect as of October 2026.

After a maxed-out 401(k), the usual next places to save are an HSA if your health plan qualifies, a backdoor Roth IRA, after-tax 401(k) contributions converted to Roth if your plan allows them, and a taxable account. A 529 plan and deferred compensation fit particular goals. The right order depends on your plan and your tax rates.

Reaching the 401(k) limit is common among high earners. In plans Vanguard administered in 2025, 14% of participants saved the maximum, and so did 51% of those earning more than $150,000.¹

For 2026 the employee limit is $24,500.² Beyond it, each option has its own rules, and in California several work differently than they do federally. If you are still building the basics, my 40s financial checkup is the place to start.

What changes for catch-ups in 2026?

At 50 or older, you can add an $8,000 catch-up to your 401(k) for 2026. In the years you turn 60 through 63, the catch-up is $11,250 instead, for $35,750 in all.²

If your FICA wages from your employer were more than $150,000 in 2025, your 2026 catch-ups to that employer’s plan must be Roth.³˒⁴ Plans apply the rule in good faith until final regulations take effect in 2027, so check how yours handles it.⁴

The Roth or pre-tax choice itself is covered in Roth vs. traditional.

Should I use an HSA?

If you have an HSA-eligible high-deductible health plan, a health savings account gives three federal tax breaks: deductible contributions, untaxed growth, and tax-free withdrawals for qualified medical costs.⁵ For 2026 the limits are $4,400 for self-only coverage and $8,750 for family coverage, and the plan’s deductible must be at least $1,700 or $3,400.⁶ At 55 or older you can add $1,000.⁵

California is the exception. It allows no deduction for HSA contributions and taxes the account’s earnings each year.⁷ At a 32% federal rate, the 2026 family contribution saves about $2,800 in federal tax and nothing in California.

An HSA can also serve as a long-term account. You can pay medical bills from other money now and reimburse yourself from the HSA years later: there is no time limit, as long as the expense came after you opened the account and you keep the records.⁸

A hypothetical example: a 45-year-old who contributes $8,750 at the end of each year for 20 years, earning 6% a year after fees with no withdrawals, would have about $322,000 at 65, before California tax on the earnings. For scale, Fidelity’s 2026 estimate is that a 65-year-old individual may need $185,500 in after-tax savings for health care in retirement, not counting long-term care, for someone retiring now; costs for someone retiring in 20 years would likely be higher.⁹

From 65, withdrawals for other purposes are taxed as income but no longer carry the 20% additional tax, and contributions stop once you enroll in Medicare.⁵

How does a backdoor Roth work?

For 2026, direct Roth IRA contributions phase out between $153,000 and $168,000 of modified AGI for single filers and between $242,000 and $252,000 for joint filers.² The income limit on conversions was repealed from 2010, which opens a back door.¹⁰

1. Contribute up to $7,500 to a traditional IRA, or $8,600 at 50 or older, without deducting it.²
2. Convert that balance to a Roth IRA.¹¹
3. File Form 8606 with your return to report the nondeductible contribution and the conversion.¹²

The pro rata rule is the trap. All your traditional, SEP and SIMPLE IRA balances at year-end count as one pool, so pre-tax IRA money makes part, often most, of the conversion taxable.¹² Moving that money into your current 401(k), if the plan accepts it, takes it out of the pool.

Spouses can each do this: $15,000 a year for a couple in 2026, or $17,200 if both are 50 or older.²

What is the mega backdoor Roth?

For 2026, total contributions to your 401(k) account can reach $72,000, not counting catch-ups.³ That total includes after-tax (non-Roth) employee contributions, if your plan accepts them.¹³

A hypothetical example: you defer $24,500 and your employer contributes $15,000, which leaves $32,500 under the limit. If the plan accepts after-tax contributions and lets you convert them, in the plan or by rolling them to a Roth IRA, that $32,500 can become Roth money, with only the earnings before conversion taxed.¹⁴

Two plan features are needed: after-tax contributions, and either in-plan Roth conversions or in-service rollovers. Among plans Vanguard administered in 2025, 24% offered after-tax contributions and 36% offered in-plan Roth conversions.¹ Nondiscrimination testing can also limit what higher earners may contribute after tax.¹⁵

The question for HR or the plan administrator: does our plan allow after-tax contributions, and in-plan Roth conversions or in-service rollovers? If you are self-employed, the same idea works in a solo 401(k) that allows after-tax contributions.

How can a taxable account be tax-efficient?

A taxable account has no contribution or income limits and no withdrawal rules. The cost is tax each year on interest, dividends and realized gains, and California taxes capital gains as ordinary income.¹⁶

• Tax-loss harvesting. A loss on a sale offsets gains, plus up to $3,000 of other income a year, with the rest carried forward.¹⁷ Buying a substantially identical security within 30 days before or after the sale disallows the loss.¹⁸ More in my post on tax-loss harvesting.
• Direct indexing. Owning an index’s stocks individually creates more chances to harvest losses, but it needs a larger account and carries higher fees than an index fund.¹⁹
• Asset location. Holding tax-inefficient assets, such as taxable bonds, in tax-deferred accounts and tax-efficient ones, such as broad index funds, in taxable accounts can lower the tax on the same portfolio.²⁰
• Basis at death. Inherited assets generally take a basis equal to their value at the date of death, so gains during your life are generally not taxed to your heirs.²¹ For a married couple’s California community property, both halves can get that new basis when the first spouse dies.²²

Where does a 529 plan fit?

A 529 plan grows tax-deferred, and federal withdrawals for qualified education costs are tax-free. California allows no deduction for contributions, and it taxes the earnings on withdrawals for K-12 tuition and some newer federal categories.²³˒²⁴

Federal law now allows unused 529 money to move to the beneficiary’s Roth IRA: up to $35,000 in a lifetime, within the annual IRA limit, from an account open at least 15 years, excluding the last five years’ contributions and their earnings, and only if the beneficiary has earned income.²⁵

California does not conform: the Franchise Tax Board treats the rollover as California taxable income and adds a 2.5% tax, so for California families it is worth less than it looks.⁷ My guide to college savings in Los Angeles compares the alternatives.

Is deferred compensation worth it?

Some employers offer a nonqualified deferred compensation plan, which lets you postpone part of your salary or bonus to a later year, often retirement. The election, including when and how you will be paid, generally must be made before the year in which you earn the pay.²⁶

The money stays a promise from your employer. To keep the tax deferral it can’t be set aside for you, so it remains subject to the employer’s creditors if the company becomes insolvent.²⁶ Deferring tends to make sense only with an employer whose finances you trust, and only in amounts you could afford to lose.

That is a starting point, not a test on its own: the payout schedule and your tax rate in the payout years matter as much.

What does California change?

California’s top rate is 13.3%, including a 1% tax on taxable income over $1 million, and it has no lower rate for capital gains.¹⁶˒²⁷˒²⁸ Pre-tax savings are worth more here as a result.

Three California rules cut the other way: no HSA deduction, no 529 deduction, and tax on 529-to-Roth rollovers.⁷˒²³ Each of these choices fits within how I approach retirement planning.

The Bottom Line

A maxed-out 401(k) leaves several places to save more, each with its own rules. For 2026, check the Roth catch-up rule and the larger catch-up at 60 to 63 first. After that, an HSA, a backdoor Roth, after-tax 401(k) money converted to Roth and a well-run taxable account usually come next, with California’s rules applied to each. The right order depends on your plan, your health coverage and your goals.

If you would like to work out which of these fit your situation, and in what order, book a complimentary 15-minute call.