Boost Retirement Savings Using After-Tax 401(k) Contributions

Retirement is expensive. If you want to recreate your income in retirement, you’ll need to save an average of 10-15% of your income throughout your career. But it’s no secret that most people either get started late or find themselves tracking behind their targets late in the game. At some point, you may realize that hitting your numbers might require being more aggressive than planned. But how should you go about doing this? One of the most overlooked and underutilized strategies available for employees to get on track is the 401(k) after-tax contribution.?

What Are 401(k) After-Tax Contributions?

In addition to the traditional pre-tax and Roth contributions, most plans also allow for? 401(k) after-tax contributions. It’s called “after-tax” because the money contributed has already been subjected to income tax at the time of deposit, which means it doesn’t provide an immediate tax deduction like pre-tax contributions. However, the earnings on after-tax contributions grow tax-deferred within the 401(k) account, just like pre-tax contributions. They are also subject to income tax when withdrawn in retirement. So how do you use them effectively? Read more...