How and Where to Invest After Reaching Your Max AbbVie 401(k) Contribution

How and Where to Invest After Reaching Your Max AbbVie 401(k) Contribution

July 25, 2023

Congratulations, you’ve maxed out your AbbVie 401(k) contribution limit for the year! This is a big milestone and shows that you’re actively taking steps towards a secure financial future. However, contributing solely to the retirement plan may not be sufficient if you want to build wealth and achieve financial independence. In this blog post, we’ll discuss how and where to invest after reaching your AbbVie 401(k) contribution limit. Our aim is to help AbbVie executives make informed decisions about their investments to achieve their long-term goals.


Start with a Health Savings Account (HSA)

An HSA is a tax-advantaged savings account that you can use to cover medical expenses. It offers triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. If you’re enrolled in a high-deductible health plan (HDHP), you can contribute up to $3,850 if you have self-only coverage and up to $7,750 for family coverage in 2023. For those over age 55, there is a $1,000 catch-up amount added to this initial limit. Unlike other investment savings vehicles, there are no income limits for HSA contributions. Additionally, once you reach age 65, you can use the funds for any purpose, not just medical expenses (although you may still have to pay taxes on non-medical withdrawals).

It's important to weigh up your health insurance and health care plans before making a switch from a PPO/HMO plan to a HDHP. Even though you get access to an HSA with the HDHP, if it becomes a lot more expensive to pay for care for you and your dependents, sometimes the switch isn’t appropriate.


Invest in a Roth IRA - either straight to it, or via the “back door” 

A Roth IRA is an individual retirement account that allows you to contribute after-tax dollars and enjoy tax-free growth and withdrawals in retirement. The maximum contribution limit for 2023 is $6,500 (or $7,500 if you’re age 50 or older). If you’re already contributing to a traditional 401(k) plan, having a Roth IRA can diversify your retirement income and potentially reduce your tax burden in retirement.


But often, your income can disqualify you from contributing directly to a Roth IRA. For single people, the income phase out is $153,000 for any contributions in 2023. For those who are married, the combined income limit is $228,000 in 2023.


What do you do if you’re above that limit? Use the “back door”. The “back door” method is done by making a non-deductible contribution to an IRA, and then converting the amount over to a Roth IRA. There are no income limits to making a non-deductible contribution to an IRA, as you’ve already paid taxes on that money. You just need to be sure that you don’t fall afoul of the “pro rata” rule which can cause your tax situation to be a mess. If you’re uncertain of how to navigate this, then PLEASE work with a financial professional versus guessing you’ll be ok.


Consider a brokerage account

A brokerage account is a taxable investment account that gives you access to a wide range of investment options. You can buy and sell stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more. Unlike retirement accounts, there are no contribution limits or penalties for early withdrawals. However, you’ll have to pay taxes on any gains and dividends earned in the account. A brokerage account can be a good option if you have short-term savings goals or want more flexibility with your investments. It’s also helpful to have account options when you get to retirement. The place I like clients to get to is having a balance of tax-deferred, taxable and Roth accounts when they retire.

Focus on your financial plan 

Before making any investment decisions, it’s essential to have a solid financial plan in place. A financial plan can help you determine your short-term and long-term goals, assess your risk tolerance, and create a roadmap to achieve your objectives. Working with an AbbVie-focused financial advisor can be beneficial if you’re unsure about where to start or need professional guidance on portfolio management. Please don’t start with an investing strategy unless you have an overall plan in place.


Be mindful of taxes, fees and overlap

Finally, it’s crucial to consider taxes and fees when investing outside your AbbVie 401(k). Taxes can take a significant chunk out of your returns, so it’s essential to understand the tax implications of your investments. Being mindful of what tax bracket you’re currently in, and what your bracket could be in retirement, should have an impact on how you are investing today. Additionally, some investments, such as mutual funds, may charge higher fees that can eat into your returns over time. Be sure to do research on your overall portfolio – or have someone like myself design it for you – as making smaller mistakes now can become compounded over your entire career. This also comes into play when you “overlap” your investments. This typically happens when people have multiple accounts (either by themselves or with a spouse) and the investments you choose are very similar – intentionally or otherwise. This leads to an undiversified portfolio and skewed investment returns.


Maxing out your 401(k) mid-year is exciting! But be sure to have a deliberate plan for your additional income for the remainder of the year.