Understanding After-Tax 401(k) Contributions
An after-tax 401(k) is a type of retirement savings account where contributions are made with post-tax dollars. This means that the contributions are not tax-deductible, but the withdrawals in retirement are tax-free. After-tax 401(k) contributions can be a valuable retirement savings tool for certain individuals.
Who Should Contribute to an After-Tax 401(k)?
After-tax 401(k) contributions can be beneficial for high-income earners who have already maxed out their traditional 401(k) contributions. Since after-tax contributions have a higher annual limit than traditional pre-tax contributions, individuals who want to save more for retirement may find after-tax 401(k) contributions attractive. Additionally, those who anticipate being in a higher tax bracket in retirement may benefit from making after-tax contributions.
It’s important to consult with a financial advisor to determine if after-tax 401(k) contributions are the right choice for your individual financial situation and retirement goals.
Consider making after-tax 401(k) contributions if you fall into one or more of the following categories:
- High-income earners
- Individuals who have maxed out traditional 401(k) contributions
- Those expecting to be in a higher tax bracket in retirement