Personal Resource Center

What you need to know about after-tax 401(k) contributions

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With after-tax 401(k) contributions, you could be eligible to save up to an additional $40,500 for retirement.

Potential drawbacks

As with any investment or savings strategy, there can be drawbacks. For after-tax 401(k) contributions, you should consider:

  • Limited investment options. Since most 401(k) plans have limited investment options, you may prefer the flexibility of a taxable investment account.
  • Rollovers aren't easy. If you want to rollover your after-tax contributions into a Roth IRA, you'll need a plan that offers in-plan conversions or in-service withdrawals6 (and yes, they're different). Otherwise, you'll have to wait until you leave the company to do a rollover, which might not be in your plans.
  • No tax savings. While you can save more for retirement, you won't get any tax break come tax time.


Alternatives to Making After-Tax 401(k) Contributions

If you're looking for more ways to save for retirement, you're not limited to making after-tax contributions to your 401(k). There are other ways that you save more—and potentially, with greater flexibility.


Pre-tax contributions

These have the potential to lower your taxable income in the year you make the contribution.


After-tax contributions

These alternatives don't offer tax benefits now, but they're another option for boosting your retirement savings.

  • Roth IRA. If you qualify for a Roth IRA, you might want to consider maxing out your Roth contributions before making after-tax contributions to a 401(k). Both your original contributions and the earnings on those contributions tax-free withdrawals at retirement. Taxable investment accounts.
  • Taxable investment accounts let you choose your own investments. They also offer easier access to funds without the distribution paperwork required with a 401(k). The accounts are available at a wide variety of online brokerages or through your financial advisor.


The bottom line on after-tax 401(k) contributions

After-tax 401(k) contributions are an often-overlooked strategy to boost your retirement savings. To help decide if this strategy is right for you, assess your plan, explore your savings options outside of your 401(k), and speak to your tax and financial advisors.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. IRS.gov, "COLA Increases for Dollar Limitations on Benefits and Contributions," accessed December 15, 2021. Back
  2. Fidelity, "What to do with after-tax 401(k) contributions," published January 29, 2021, accessed January 3, 2022. Back
  3. IRS.gov, "Hardships, Early Withdrawals and Loans," accessed January 3, 2022.3. Michelle P. Scott, "Legislative Threat to Mega Backdoor Roth Conversions," Investopedia, published December 14, 2021, accessed December 15, 2021. Back
  4. E. Napoletano, "Is The Mega Backdoor Roth Too Good To Be True? " Forbes Advisor, published April 13, 2021, accessed December 15, 2021. Back
  5. C. Benz, "Is the Backdoor Roth Still Legit?" Morningstar, published January 21, 2022, accessed January 28, 2022. Back
  6. C. Benz, "2 Ways to Upgrade Your 401(k) Without Leaving Your Job," published April 30, 2018, accessed January 28, 2022. Back
  7. IRS.gov, "Retirement Topics - IRA Contribution Limits," accessed January 3, 2022. Back
  8. IRS.gov, "Are You Covered by an Employer's Retirement Plan?" Updated July 1, 2021, accessed January 27, 2022. Back