You could also switch to spelling if he doesn't really need reading instruction. Just keep having him read aloud to you, and see if his skills keep growing without direct instruction, help him with harder words, etc... Some kids do take off on their own after awhile. All About Spelling is a complete phonics program, so it will fill in any gaps. You could also see if he's ready to bump up to AAR 4 when he finishes 2 if you do want to continue direct reading instruction--here's the Level 4 placement test. That level takes kids up to high school level word-attack skills (things like dividing words into syllables, making analogies to other words, sounding out the word with the accent on different word parts, recognizing affixes, etc…) It introduces more literary terms, explores varying dialects and regional language, and explores words containing influences from Greek, French, Spanish, and Italian.