Your employer may allow you to make after-tax 401(k) contributions. These are not tax-deductible like your regular 401(k) contributions, but you can make after-tax deferrals beyond the annual 401(k) contribution limit. Plus, the earnings from these extra contributions grow tax-free. This retirement strategy also opens the door for rollover opportunities that can provide you with even more tax breaks. However, making after-tax 401(k) contributions may not be the best decision for everyone.

Consider talking to a financial advisor if you have specific questions about your situation.

How Do After-Tax 401(k) Contributions Work?

After-tax 401(k) contributions are the kind that don’t earn you a tax deduction. These contributions are taken from your paycheck after it has been taxed. However, investment earnings on these contributions grow tax-free. Unfortunately, not many employers allow you to make after-tax 401(k) contributions. But if yours does, you have some perks to look forward to.

For starters, you get to breach the annual 401(k) contribution limit by making after-tax deferrals. In 2025, employees can make up to $23,500 in pre-tax salary deferrals toward their 401(k) plans. This limit rises to $30,000 for those 50 and older. In 2024, those limits were $23,000 and $30,500, respectively. Starting in 2025, workers aged 60 to 63 can make tax-deductible contributions of up to $34,750 to a 401(k) or similar plan thanks to “super catch-up contributions.”

Keep in mind, however, that these limits apply to pre-tax employee contributions. The 2025 total contribution limit from all sources is $70,000 or $77,500 for participants 50 or older. The 2024 total contribution limit from all sources was $69,000 and $76,500 for participants 50 and older. The IRS made this rule because some companies provide contribution matches toward their employees’ 401(k) plans. Some also allow workers to make after-tax contributions.

So after-tax 401(k) contributions come in handy after you breach your employee deferral limit for the year. Consider the following scenario:

First, you breach your pre-tax 401(k) contributions to get the biggest tax deduction you can get this year. Next, you aim to reach the $70,000 limit with your after-tax contributions. While you won’t get a tax deduction for these particular contributions, the earnings on these will still grow tax-free as long as your money is in the account.

So if you built a solid 401(k) portfolio with diversified investments based on an appropriate asset allocation, you may earn major returns. Furthermore, after-tax contributions can be key components to another retirement planning strategy.

Downsides of After-Tax 401(k) Contributions

The process of rolling over after-tax contributions from a 401(k) into a Roth IRA isn’t necessarily an easy one. For the most part, you can initiate this process only after you’ve left the employer that sponsors your 401(k) plan.

At this point, most companies either give you access to your funds or automatically roll over pre-tax assets and earnings into an IRA in your name. In either case, you will have to calculate the portion of the account made with after-tax contributions and roll it over into a Roth IRA. But if you can stomach a little bit of paperwork and calculations, you can be looking at serious savings.

So in this situation, you can roll over after-tax contributions toward a Roth IRA. In addition, you can transfer the pre-tax portion of your 401(k) to a traditional IRA. In some cases, employers allow in-service transfers from your 401(k) plan to a Roth IRA. So check to see if your company does.

Overall, you should make sure you have adequate savings sheltered outside retirement plans before you start taking advantage of after-tax 401(k) contributions. It makes sense to make these after you’ve maxed out your pre-tax 401(k) contributions. However, the IRS places restrictions on retirement plans. So saving sufficient funds in taxable vehicles like brokerage accounts ensures some degree of liquidity.

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Roll Over After-Tax 401(k) Contributions to a Roth IRA

The IRS allows you to roll over after-tax 401(k) contributions into a Roth IRA. And because the IRS already taxed you on these contributions, the conversion won’t trigger more taxes. Ordinary rollovers from a 401(k) into a Roth IRA may be considered a taxable event depending on how you do it.

But you reach the real sweet spot when you make eligible withdrawals from your Roth IRA tax-free. Remember, traditional 401(k)s are tax-deferred accounts. This means that the IRS taxes you when you start withdrawing your money in retirement. At that point, the money you take out is taxed as ordinary income.

However, Roth IRAs are after-tax investment vehicles by definition. The IRS taxes contributions before they go into Roth IRAs, so they can’t do it again when you make eligible withdrawals. However, you need to be at least 59 ½ years old. Your account must have been open for at least five years.

Keep in mind that these rules apply to your earnings. You have access to the contributions you make toward a Roth IRA at any time regardless of age. Now, consider this hypothetical situation and assume you’ve yet to reach age 50:

Let’s say you open a Roth IRA without transferring after-tax contributions from a 401(k) plan. Remember, your 2025 maximum Roth IRA contribution is $7,000 ($7,000 in 2024) and the pre-tax contribution limit for traditional 401(k)s stands at $23,500 for 2025 ($23,000 in 2024). However, the maximum that can be contributed toward your total tax-deferred retirement accounts in 2025 is $70,000 ($69,000 in 2024).

In turn, you can essentially transfer the difference toward your 401(k) plan in after-tax contributions. As a result, you can transfer this much to a Roth IRA, let it grow and withdraw your earnings tax-free in retirement. So to recap, attempt the following steps to make the most out of this process.

Contribute the 2025 maximum of $23,500 to your 401(k) plan with ordinary pre-tax contributions
Open a Roth IRA and contribute the 2025 maximum of $7,000
Transfer $39,500 toward your 401(k) plan in after-tax contributions
Roll over an after-tax portion of your 401(k) plan into your Roth IRA

In addition, a special provision of the tax code allows you to take the after-tax portion of your 401(k) as soon as you retire. So if you need access to this money, it’s yours tax-free. But rolling it over into a Roth IRA gives you the extra boost of tax-free growth and withdrawals in the future. Despite these perks, making after-tax contributions toward a 401(k) plan may not be the best decision for everyone.

When to Know When You Should Make After-Tax 401(k) Contributions

Making after-tax 401(k) contributions can be a valuable strategy for high earners and dedicated savers looking to maximize their retirement savings. Unlike traditional pre-tax or Roth 401(k) contributions, after-tax contributions allow you to exceed the standard contribution limits while still benefiting from tax-deferred growth. You should consider making after-tax 401(k) contributions if:

You’ve Maxed Out Pre-Tax/Roth 401(k) Contributions: If you’ve already contributed the annual limit ($23,000 in 2024, plus $7,500 catch-up for those 50+) to your traditional or Roth 401(k), after-tax contributions let you save more.

You Can Afford Higher Savings: If you have additional income and want to maximize retirement savings beyond the standard limits, after-tax contributions help you invest more for the future.

Your Employer Allows In-Plan Roth Conversions: Some employers let you convert after-tax contributions to a Roth 401(k) immediately, preventing future tax liability on earnings.

You Plan to Roll Into a Roth IRA: After-tax 401(k) funds can be rolled into a Roth IRA, allowing tax-free growth and withdrawals in retirement. This is a strategic move for long-term tax-free income.

You Expect Higher Taxes in Retirement: If you anticipate being in a higher tax bracket later, shifting funds into a Roth through after-tax contributions can be beneficial.

You Have a Strong Emergency Fund: Ensure your short-term financial needs are covered before locking up additional funds in a retirement account.

If these factors align with your financial goals, after-tax 401(k) contributions could be a smart way to boost your retirement savings.

What About a Roth 401(k)?

If your employer offers a Roth 401(k), the elective deferrals you use to fund it are also a type of after-tax contribution. However, withdrawing assets from a Roth 401(k) is different from taking your after-tax contributions from a traditional 401(k).

When you make qualified withdrawals from a Roth 401(k), you won’t face any taxes as long as you’re at least 59 ½. However, the IRS will tax the earnings on your contributions to your traditional 401(k). In addition, you don’t have tax-free access to the contributions you make to a Roth 401(k) before you turn 59 ½. This is not the case with after-tax contributions to a 401(k).

Bottom Line

Your employer may offer after-tax 401(k) contributions, which don’t provide an immediate tax deduction but let you exceed annual contribution limits. Earnings grow tax-free, and you can roll the after-tax portion into a Roth IRA for tax-free withdrawals in retirement.

Retirement Planning Tips

Making the most of after-tax 401(k) contributions takes careful planning and strategic thinking. That’s when guidance from a financial advisor can be extremely helpful. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
IRS treatment of the 401(k) plan get very complicated. To help, we compiled an in-depth report on the 401(k) tax rules you need to know.