If your retirement is already funded, you should still save cash

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. Financial experts have been saying it for years — "invest your money for retirement" — and a new survey shows that a growing number of people are listening. These people are now in the enviable position of having made the maximum allowable contributions to their retirement funds and not knowing what to do with their additional savings.

Profiles in great 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 two children's 529 college education accounts are fully funded, too. 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."

How to save when 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 can convert a traditional IRA to a Roth IRA, regardless of income. There is a cost, however, because taxpayers must pay ordinary income tax on the entire amount converted. Still, the strategy can pay off for taxpayers like the Rowsons. They can convert the funds and split the tax liability between 2011 and 2012.

Other savings options

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 Rowsons’ advantage is that Amber is self employed, and should her business suffers from market conditions, she can use savings if she needs to without any tax penalties.

Don't forget about 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’ portfolios have standard stock and bond options, so extra money can go into other avenues for savings like cash valued life insurance. This would provide another way to enjoy tax-deferred earnings as well as 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.” Someone like Amber, who wants to invest in real estate, would find this a highly advantageous option for future savings.

Who doesn’t want to maximize 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 the investor's individual circumstances, some options may make more sense than others. Experts advise that the best thing for avid savers to do is simply to continue saving, one or another. There are always wise options when it comes to saving for the future.