How can after-tax contributions help maximize retirement savings?

After-tax contributions are managed through retirement plan administration systems and can help employees grow their retirement savings. Once pre-tax limits are exhausted, savers can continue to invest money through after-tax deposits in tax-advantaged accounts. The contributions grow tax-free, offering more flexibility and control over taxes in retirement.

How do after-tax contributions differ from pre-tax contributions?

The primary difference between pre-tax and after-tax contributions lies in the timing of tax payments. Pre-tax contributions reduce taxable income upfront but are taxed as ordinary income when withdrawn during retirement. After-tax contributions utilize already taxed income, allowing qualified withdrawals to be tax-free while offering potential benefits for those expecting a higher tax rate in retirement.

Which retirement accounts allow for after-tax contributions?

Several retirement accounts accept after-tax contributions. Roth 401(k)s and Roth IRAs are the most common. Both use taxed income upfront and offer additional strategies, such as in-service rollovers or mega backdoor Roth conversions. Some 401(k), 403(b), and 457 plans also allow after-tax contributions, often above standard limits. Health Savings Accounts (HSAs) accept after-tax contributions in certain circumstances. A tax professional can help determine which approach is most suitable in each situation.