After Tax Roth 401k Contribution Limits and Retirement Planning

You can contribute up to $19,500 to a traditional 401(k) in 2022, but if you have a Roth 401(k) option available, you can contribute an additional $6,500 to a Roth 401(k) in 2022, for a total of $26,000.

The Roth 401(k) contribution limit is $19,500 in 2022, with an additional catch-up contribution of $6,500 allowed for those 50 and older.

Having a Roth 401(k) can be a great way to save for retirement, but it's essential to consider your overall tax situation and financial goals before making contributions.

In 2022, you can contribute up to $19,500 to a traditional 401(k) and an additional $6,500 to a Roth 401(k) for a total of $26,000, with a catch-up contribution of $7,500 for those 50 and older.

Discover more: 401k Ira Rollover Rules

The Roth 401(k) contribution limits are the same as traditional 401(k) contribution limits. In 2025, you can contribute up to $23,500, and those 50 and older get a catch-up contribution of $7,500.

There's an additional catch-up contribution of $11,250 for those ages 60 to 63, thanks to the Secure 2.0 Act. This is a significant boost for those nearing retirement who want to maximize their savings.

However, it's worth noting that catch-up contributions for highly paid retirement plan participants, defined as those who earn over $145,000, will be made to a Roth account starting in 2026.

Here's a breakdown of the Roth 401(k) contribution limits:

These limits are subject to change, so be sure to check for updates in future years.

Only about 21% of companies offer the after-tax contribution option.

The after-tax option predates the Roth 401(k) and allows for tax-deferred growth of earnings, just like a Roth 401(k). However, the earnings on the account are taxed upon withdrawal.

You might be thinking, "Why pay taxes if I don't need to?" But there are three reasons why workers could benefit from going the route of after-tax 401(k) contributions.

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Most employers that offer both a Roth 401(k) and a traditional 401(k) will let you switch back and forth between them or even split your contributions.

Using both accounts can enable tax diversification in retirement, allowing you to choose whether to pull money from a tax-free or a tax-deferred pot, or a combination of the two, each year.

You can contribute to both a 401(k) and a Roth 401(k) if your employer offers both options. Many employers will let you switch back and forth between them or even split your contributions.

Employers may match Roth 401(k) contributions, and the matching amount will go into a pretax account, which is a traditional 401(k). This means you'll have both a tax-free and a tax-deferred pot to choose from in retirement.

Using both accounts can help you achieve tax diversification in retirement, allowing you to choose whether to pull money from a tax-free or a tax-deferred pot, or a combination of the two, each year.

Take a look at this: In an Individual Retirement Account Ira Rollover Contributions Are

A retirement plan is a great way to save for your future, and it's essential to understand the different types of plans available. You can contribute to a retirement plan through your employer or on your own, and the money grows tax-free over time.

There are limits on annual contributions to a Roth 401k or a Roth IRA, so it's essential to plan ahead and take advantage of the maximum allowed contributions. This can help you save more money for your retirement.

Roth 401(k) and IRA accounts are considered tax-exempt or tax-free, meaning you won't have to pay taxes on withdrawals in retirement. This can be a significant advantage, especially if you're in a lower tax bracket when you retire.

Here are some key facts about retirement plans:

A Roth 401(k) is a type of 401(k) that allows you to make after-tax contributions and then get tax-free withdrawals when you retire. This can be a great option if you expect to be in a higher tax bracket when you retire.

You can contribute to a traditional IRA, and the annual limit for 2023 was $6,500, increasing to $7,000 in 2024.

If you're 50 or older, you're eligible for an additional $1,000 contribution in both years.

The total amount you contribute to both a traditional IRA and a Roth IRA cannot exceed the overall IRA limit set by the IRS.

Expand your knowledge: Traditional Ira Tax Deferred

Using a Roth 401(k) can cost you more upfront because after-tax contributions take a bigger bite out of your paycheck.

Contributions to a Roth 401(k) can be more expensive in the short term due to the taxes you pay on the front end.

It may cost you more on the front end to use a Roth 401(k) because an after-tax contribution takes a bigger bite out of your paycheck than a pretax contribution to a traditional 401(k).

The extra cost of a Roth 401(k) upfront can be a significant consideration, especially for those on a tight budget.

For your interest: Solo 401k after Tax Contributions

A Mega Backdoor Roth 401k is a strategy to circumvent the annual limits on contributions to a Roth IRA or Roth 401k.

To take advantage of this strategy, your employer must offer in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k).

You contribute after-tax money to your 401k. This is the first step in the Mega Backdoor Roth process.

You then perform in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k). This allows your Roth dollars to grow tax-free.

Here's a step-by-step breakdown of the Mega Backdoor Roth process:

If your plan doesn't allow in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k), you may need to create two separate accounts to ensure accurate income tax modeling.

One account would be for tax-deferred dollars, and another for after-tax dollars. This is because your 401k account contains after-tax dollars, and you contribute after-tax dollars to your 401k.

Additional reading: Governmental 457 Plan

Contributing to both a 401(k) and a Roth 401(k) can be a smart move, especially if you're not eligible for a Roth IRA due to income limits. You can even split your contributions between the two accounts.

Employers that offer both types of accounts often let you switch back and forth or match Roth 401(k) contributions. This means you can have a traditional 401(k) and a Roth 401(k) at the same time, even if you contribute to the Roth account.

Here's an interesting read: Are Contributions to a 457 Plan Tax Deductible

Having a volatile income can make it challenging to plan for retirement, but there's a simple solution. Building a savings buffer in an after-tax account can make sense for individuals who experience income fluctuations.

For example, an individual in a commission-based sales role might be able to save a lot of money for retirement one year, but if the next year becomes lean, they would be able to put away only a small amount for retirement.

Using the after-tax account to increase savings during the years when income is higher can help ensure adequate retirement savings over time despite periods when your income fluctuates.

For your interest: Roth 5 Year Rule 401k

As you approach retirement, it's essential to consider how your lifestyle will change. Many people assume they'll have more free time, but the reality is that retirees often stay busy with hobbies, volunteering, and spending time with loved ones.

Retirement can last anywhere from 20 to 30 years, depending on life expectancy. This means you'll need to make your retirement savings last that long.

You'll have more control over your schedule, allowing you to pursue activities you enjoy. Many retirees find that they're more productive in retirement, with a sense of purpose and fulfillment.

The average retirement age is 64, but this can vary depending on your health, occupation, and other factors. Some people choose to retire earlier or later than this average.

You may need to adjust your budget to account for increased healthcare costs, which can be a significant expense in retirement. According to the article, healthcare costs can account for up to 20% of your expenses.

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