After-Tax Contribution

An after-tax contribution is a contribution to a retirement plan that is made with money that has already been taxed. This means that the amount of money that is contributed to the plan is reduced by the amount of taxes that have already been withheld from the employee's paycheck.

There are a few different types of after-tax contributions that can be made to a retirement plan. One type is a Roth contribution, which is made with after-tax money and grows tax-free over time. Another type is a non-Roth after-tax contribution, which is made with after-tax money but is taxed when it is withdrawn from the plan.

The amount of money that can be contributed to a retirement plan in after-tax dollars is limited by the plan's annual contribution limit. For 2023, the annual contribution limit for a 401(k) plan is $20,500 ($27,000 for those age 50 or older). The annual contribution limit for a Roth IRA is $6,000 ($7,000 for those age 50 or older).

There are a few advantages to making after-tax contributions to a retirement plan. One advantage is that it can help you to save more money for retirement. This is because you can contribute more money to your plan with after-tax dollars than you can with pre-tax dollars. Another advantage is that you can access your after-tax contributions more easily than you can your pre-tax contributions. This is because after-tax contributions are not subject to the same restrictions as pre-tax contributions.

However, there are also a few disadvantages to making after-tax contributions to a retirement plan. One disadvantage is that you will have to pay taxes on your after-tax contributions when you withdraw them from the plan. Another disadvantage is that you may not be able to deduct your after-tax contributions from your taxes.

Overall, after-tax contributions can be a good way to save for retirement. However, it is important to weigh the advantages and disadvantages of making after-tax contributions before you decide if they are right for you.