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Showing posts from November, 2014

"My company offers an after-tax 401k. Should I contribute to it?"

I've spent a lot of time over the past few weeks educating myself on "after-tax 401(k)s." These are different than, and sub-optimal to traditional pre-tax 401(k)'s and IRAs as well as Roth 401k(s) and IRAs, which you should max out before considering contributions to an after-tax 401(k). To be clear: the topic of this post is "after-tax, non-Roth" 401(k)s. The basic 401(k) salary deferral limit of $18,000 applies to pretax and Roth contributions. But there is a total contribution limit of $52,000 annually, which includes the $18,000 pretax or Roth contribution limit, employer matching contributions (which will probably not be more than $10,000), plus after-tax non-Roth contributions.[2016 numbers]. This means that more than $25,000 of after-tax 401k space may be available to you. Unlike a Roth 401k, in which earnings are never taxed, earnings in an after-tax 401k will eventually be taxed at withdrawal at your marginal income tax rate. This will likely be h…