What Are After-Tax Contributions to Retirement Accounts?
In plain English
After-tax contributions are amounts added to a retirement account using income that has already been taxed, as opposed to pre-tax contributions that reduce current taxable income. In a 401(k), after-tax contributions go beyond the standard deferral limit and are often used in the mega backdoor Roth strategy. In a traditional IRA, non-deductible contributions are the after-tax equivalent.
How Are After-Tax Contributions Different From Roth Contributions?
Both after-tax and Roth contributions use already-taxed money, but they behave differently. Roth contributions grow and are withdrawn tax-free in qualified retirement situations. Standard after-tax contributions to a traditional 401(k) grow tax-deferred, and only the original contribution basis is tax-free at withdrawal — growth is still taxed. Converting after-tax contributions to Roth (the mega backdoor Roth) achieves tax-free growth going forward.
How Are After-Tax Contributions Tracked?
The IRS requires you to track after-tax contributions to traditional IRAs using Form 8606. This establishes your cost basis, ensuring you don't pay tax twice on those dollars when you withdraw. Your 401(k) plan administrator tracks after-tax contributions in your account. When you roll over or convert those funds, accurate records prevent unnecessary double taxation. Keeping historical Form 8606 filings is essential.
Should You Make After-Tax Contributions to Your 401(k)?
After-tax 401(k) contributions primarily make sense if your plan allows the mega backdoor Roth strategy. Without that option, you'd be contributing money that grows tax-deferred but is eventually taxed on withdrawal — no better than a taxable brokerage account in many respects. If your plan permits Roth in-plan conversions or in-service withdrawals, after-tax contributions become a powerful tool for maximizing tax-free retirement savings.
Frequently asked questions
Are after-tax 401(k) contributions subject to RMDs?
Yes. After-tax contributions in a traditional 401(k) are subject to RMDs starting at age 73. If you convert them to a Roth account through the mega backdoor Roth strategy, the converted funds move to a Roth 401(k), which was previously subject to RMDs but no longer is as of 2024 under SECURE 2.0.
What is the cost basis for after-tax IRA contributions?
Your cost basis for non-deductible IRA contributions is the total amount contributed after-tax, as tracked on Form 8606. When you withdraw from a traditional IRA containing both pre-tax and after-tax funds, each distribution is proportionally tax-free (the ratio of after-tax basis to total IRA value) and taxable.
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Related terms
Mega Backdoor Roth
The mega backdoor Roth is an advanced strategy that allows high earners to contribute up to $46,500 in after-tax money to a 401(k) and convert it to Roth savings.
Backdoor Roth IRA
The backdoor Roth is a strategy that allows high-income earners who exceed Roth IRA income limits to make Roth contributions indirectly through a traditional IRA conversion.
Roth IRA
A Roth IRA is an individual retirement account where you contribute after-tax dollars and your investments grow tax-free, with tax-free withdrawals in retirement.
401(k)
A 401(k) is an employer-sponsored retirement savings plan that lets you contribute pre-tax dollars, reducing your taxable income today while your investments grow tax-deferred.
Traditional IRA
A traditional IRA lets you contribute pre-tax dollars that grow tax-deferred, with withdrawals taxed as ordinary income in retirement.
Required Minimum Distribution (RMD)
A required minimum distribution (RMD) is the minimum amount the IRS requires you to withdraw annually from most retirement accounts starting at age 73.