Is there any reason to make after-tax contributions to a 401k?
Making after-tax contributions inside a traditional retirement plan means the earnings can be taxed upon withdrawal, and tax penalties can apply if you try to take a flat payout for major expenses like buying a house. People also struggle to know whether these contributions are kept separate or commingled, and whether they can avoid future taxes by rolling them over into an IRA or another 401k.
What people tried
Every workaround mentioned in the threads below. We haven’t tested any of them — and nobody here is claiming they worked.
- 1searching online or through separate reddit threads
- 2contributing to a Roth IRA or utilizing backdoor and mega backdoor Roth strategies
- 3rolling the distribution into an IRA or a new employer's 401k
- 4contacting HR or the plan administrator for the Summary Plan Description and rollover paperwork
- 5taking a cash payout and paying the resulting tax penalties
In their words
Unedited, grouped by where they were said, most upvoted first within each place, each linked to the thread it came from.
“Will this get taxed when it gets distributed to me, and should I be able to avoid that by rolling it over to either my 401k or a IRA that I set up?”source ↗
“While a flat payout of this would be nice to finally work towards buying a house, the tax penalties scare me.”source ↗
“My 401k at the new company has about $170k. If I have the option should I just roll into that one or keep it separate and open a new IRA?”source ↗
“Is there any reason to make Roth contributions to a traditional 401k?”source ↗
“Googling doesn't seem to turn much up either, only a separate reddit thread that suggests these Roth contributions are likely still subject to income tax on gains at withdrawal?”source ↗
“Is the money commingled or will they be kept separate?”source ↗
Where this came up
People with this problem also raised
- 3How do 401(k)s and retirement accounts actually work?
- 5How to hit max 401k contribution with whole percentage limits
- 3How to minimize taxes on a large pre-tax retirement account and RMDs
- 9Should I invest extra savings in a brokerage account or a Roth IRA?
- 4Can my retirement contributions exceed my earned income?
- 4How to handle 401(k) contributions and employer matches when changing jobs