How after-tax 401 (k) contributions work. Employees who have a traditional 401 (k) plan at work can make contributions through payroll. Your annual contribution is capped at $20,500 in 2022. Those …
After-tax contributions can be made at the same time as your regular contributions. Check with your plan administrator if the rules seem unclear. The IRS allows a total of up to $61,000 to be saved in a 401(k) for 2022 ($67,500 including catch-up contributions for people age 50 and over). Here’s what’s included: What you save
Should You Make After-Tax Contributions to Your 401(k)?
Official Site: https://www.fool.com/retirement/plans/401k/after-tax/
The primary advantage of after-tax 401 (k) contributions is that you can contribute beyond the standard contribution limits every year. In 2021, you are allowed to …
These after-tax contributions (not to be confused with Roth 401(k) contributions) are not new, but 2014 legislation on how those after-tax monies are handled make utilizing this strategy much more attractive. Notice 2014-54 clarified the IRS’ position on allowing the splitting of pre-tax and after-tax monies when rolling a 401(k) over to IRAs.
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Are after-tax 401 (k) contributions a good idea?
After-tax 401 (k) contributions are a wise choice for some people. Kailey has been writing about personal finance since 2013. She does her best to keep it interesting and jumps at any opportunity to learn something new.
Can I make after-tax contributions to my plan?
One quick note about after-tax contributions—you may not have to wait until you’ve hit the annual contribution limit during the year to make them. After-tax contributions can be made at the same time as your regular contributions. Check with your plan administrator if the rules seem unclear.
What happens to your 401 (k) when you retire?
When you withdraw the money in retirement or whenever you need the extra cash, you will owe taxes only on your earnings, not your contributions. This is true no matter your age or why you’re withdrawing the funds. If you choose, you can convert your after-tax 401 (k) funds to a Roth IRA later on, assuming your plan allows this.
Do I have to pay taxes on a 401 (k) conversion?
You won’t owe taxes on the converted amount because you already paid taxes the year you contributed the money, but future earnings will grow tax-free. Not all plans permit after-tax 401 (k) contributions, so it’s important to check with your employer before exceeding the annual contribution limit.
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