How to Determine Your After-Tax 401k Contribution

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Do you want to save more for retirement but have already maxed out your 401k? If your employer allows after-tax contributions, you can save beyond the pre-tax limits pre-tax and increase your contributions tax-free. While this strategy isn’t for everyone, understanding the basics can help determine if it’s right for you. 

What is an After-Tax 401k Contribution? 

After-tax 401k contributions allow you to contribute additional money into your 401k after you’ve already paid taxes. Post-tax dollars mean you already contributed to your 401k and your employer matched, and then you contribute an additional amount. 

How After-Tax 401k Contributions Work

Traditional 401k plans allow contributions to be made through payroll deductions. Annually, you can add up to $20,500 in 2022 and up to $22,250 in 2023. However, if you are aged 50 or above, traditional 401ks allow you to contribute an additional $6,500 in catch-up funds in 2023 and will allow for up to $7,500 in 2023. This is where after-tax 401k contributions come in. For example, if you don’t contribute the annual limit after your employer match, you can make after-tax contributions to get to that amount. After-tax contributions are especially beneficial to people with higher incomes since there are no income restrictions on these contributions, unlike Roth IRAs. 

Who Should Make After-Tax 401k Contributions

As previously mentioned, after-tax 401k contributions aren’t right for everyone. Those that would benefit the most from this contribution include high earners who max out their pre-tax contributions or individuals who want investment to grow tax-deferred. 

Pros and Cons of After-Tax 401k Contributions


After-tax 401k contribution benefits are an extension of the benefits included in traditional 401k retirement contributions, plus some additions. One of the significant benefits is tax-advantaged growth. After-tax 401k contributions grow on a tax-deferred basis, meaning that when you withdraw the money when you are retired, you will only be taxed on your earnings, not the contributions. 

Additional benefits include pulling contributions directly from your paycheck, making it seamless, and can withdraw it at any time with no tax or penalty. However, if you withdraw the earnings from the contributions and are younger than 59 ½, you may have to pay a 10% penalty. 


The biggest con to after-tax 401k contributions is that you will still owe taxes on your earnings, even though you are not paying them immediately. However, you can minimize your taxable earnings by rolling funds into a Roth IRA or Roth 401k, which most after-tax contributions allow you to do, so be sure to check the specifics of your plan. But note that if you do not have a plan that allows rollovers, you will have to wait until you leave the company, which isn’t an option for everyone. 

Other cons include limited investment options and no tax savings. 

How to Rollover After-Tax 401k Contributions into a Roth Account

One of the benefits of after-tax 401k contributions we’ve mentioned is the ability to roll it into a Roth account. In fact, there are two ways of doing so. Keep reading to learn more. 

In-Plan Conversion

If your employer offers in-plan conversion, that means you can convert some or all of your 401k into a Roth. You have to pay taxes on the amount you convert, but your withdrawals will be tax-free in the future. Check with your employer to see if you have this type of plan and if you have an auto-convert feature. 

In-Service Withdrawal

In-service distributions or withdrawals allow you to do a mega backdoor Roth, where you roll after-tax contributions into a Roth IRA outside your current retirement plan. Mega backdoor Roth accounts allow people to put up to $40,500 of post-tax dollars after the maximum of $61,000 into their account, but note that this is complicated, and there is a potential to receive high tax bills, so be sure to consult with a professional before creating this account on your own. 

Retirement Planning Tips

Whether or not you make after-tax 401k contributions, be sure that you are making the most out of your 401k plan to ensure you are prepared for retirement. If you have any questions on how to utilize your plan best, reach out to the experts at Canal HR, and we are more than happy to help. Be sure to also check out our 401k page on our website to understand the different plan options, learn more about the benefits, and schedule a free consultation with a member of our team. 

Contact Canal HR to Get Started with Your After-Tax 401k Contributions

If you want to learn more about after-tax 401k contributions, learn more about taxes, or set up a 401k program for your business, contact Canal HR. We are a professional employer organization based in Metairie, Louisiana, with decades of experience in taxes, compliance, interest rates, and more. Contact us today to learn more about how we can help you streamline your HR efforts and have more time to run your business.