401(k) rollover glossary
After-Tax 401(k) Contributions
After-tax 401(k) contributions are voluntary contributions beyond the standard $23,000 pre-tax limit, made with money you've already paid income tax on. At separation, the principal can roll to a Roth IRA tax-free.
After-tax 401(k) contributions are a less well-known feature offered by some employer plans. Unlike standard pre-tax (Traditional) contributions — where you defer income tax until withdrawal — after-tax contributions are made with money you have already paid income tax on, similar in concept to Roth contributions.
The key distinction: after-tax contributions are NOT Roth 401(k) contributions. They are a third category that exists only in certain plans. The combined annual limit for all contributions (pre-tax + after-tax + employer match) is $69,000 in 2024, versus the standard employee-only pre-tax limit of $23,000.
When you leave a job, after-tax contributions can be split into two destinations: the principal (the amount you contributed, already taxed) rolls to a Roth IRA completely tax-free, and the earnings on those contributions (which have grown pre-tax inside the plan) roll to a Traditional IRA. This strategy is permitted under IRS Notice 2014-54.
This separation-day opportunity is sometimes called the 'mega backdoor Roth at separation.' It can move tens of thousands of dollars into a Roth IRA tax-free in a single transaction — an amount far above the normal annual Roth IRA contribution limit of $7,000.
To use this strategy, you need to: (1) verify you have an after-tax balance in your plan, (2) obtain your exact cost basis from the plan administrator, and (3) direct the custodian to split the distribution — after-tax principal to Roth IRA, earnings to Traditional IRA. Some custodians are unfamiliar with this; reference IRS Notice 2014-54 and ask to escalate if needed.
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Frequently asked questions
- How do I know if my plan has after-tax contributions?
- Log into your plan portal and look for a 'contribution source breakdown' or 'balance by source' view. Look for a line labeled 'voluntary after-tax,' 'non-deductible,' or 'after-tax employee.' Alternatively, call your plan administrator and ask directly.
- Are after-tax contributions the same as Roth 401(k)?
- No. Roth 401(k) contributions are designated Roth — they grow tax-free and distributions are tax-free. After-tax contributions are a different category: the principal is after-tax, but the earnings grow pre-tax and are taxed on withdrawal (unless separated at rollover using Notice 2014-54).
- Can I do this strategy while still employed (not just at separation)?
- It depends on your plan. Some plans allow 'in-service distributions' that let you move after-tax contributions to a Roth IRA while still working. Most plans only allow this at separation, retirement, or plan termination. Check with your HR department.
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This glossary entry provides educational information based on IRS rules. It is not tax or legal advice for your specific situation.