Whether you’ve recently started contributing to a 401(k) or you’re a seasoned saver, you’ve probably come across the terms “Roth” and “after-tax” contributions before. At first glance, these two options seem like they’re basically the same thing, begging the question…
Isn’t Roth, by definition, after-tax?
Where does the distinction lie?
Why (and when) should you choose one over the other?
While you pay taxes up front on both Roth and after-tax contributions, they’re treated differently when the time comes to withdraw in retirement. The trick is, your options are often limited by what your employer-sponsored retirement plan allows.
Let’s take a closer look at the benefits, limitations, types of contributions, and what’s possible with your employer plan—especially if you’re looking to maximize retirement savings well beyond the standard annual contribution limit.
Types of 401(k) contributions
If your employer offers an employer-sponsored retirement plan, including a 401(k), 403(b), or Thrift Savings Plan, you likely have the option to defer a portion of your paycheck directly to your plan account.
These contributions generally fall into three categories: pre-tax, Roth, and after-tax. Each bucket works a little differently and can be worth utilizing depending on where you are in your saving and investing journey (and what’s allowed by your employer).
Pre-tax
Pre-tax contributions (also known as “traditional” contributions) are deferred directly into your retirement account from your paycheck, prior to being taxed—hence the name “pre-tax.”
Pre-tax contributions lower your taxable income now, meaning you won’t owe taxes on your full salary for any year you make traditional contributions, only what’s left after. While this lowers your immediate tax liability, you’ll eventually owe taxes on what you take out in retirement on both the original contributions and any earnings they’ve generated. However, the earnings in your 401(k) are tax-deferred, which allows your savings to grow uninterrupted between now and retirement.
Keep in mind, traditional 401(k)s are subject to required minimum distributions (RMDs) starting at age 73, or age 75 starting in 2033.1 Each year, you must withdraw a portion of your 401(k), depending on the IRS’s lifetime expectancy table and the size of your account on the last day of the previous year. These withdrawals are subject to ordinary income tax, meaning RMDs can create a tax challenge when combined with your other retirement income sources.
After-tax
Just as it sounds, after-tax contributions are taken from your paycheck with money that’s already been taxed.
With an after-tax contribution, your money again grows tax-deferred, meaning it can earn interest, dividends, or gains over time without being taxed each year. You will, however, have to pay taxes on the earnings when you withdraw them in retirement. While you won’t owe taxes on the contributions themselves (since you already paid them), any earnings will be taxed as ordinary income when distributed from the account.
Roth
Similar to an after-tax contribution, Roth contributions are also taxed upfront before landing in your retirement account.
However, with qualified Roth withdrawals, both your contributions and any earnings in the account are completely tax-free. Your only tax burden is at the time of contribution—otherwise, you’re off the hook (as long as your withdrawals meet the qualifying criteria).
To make a qualifying withdrawal from your Roth account, you must own the account for at least five years since your first contribution was made. In addition, you must either:
- Be 59.5 or older
- Disabled (as defined by the IRS)
- Inherit a Roth account
- Use the funds to purchase your first home ($10,000 lifetime limit)1
Notably, the SECURE 2.0 Act of 2022 eliminated RMDS for Roth 401(k)s.
How are Roth and after-tax contributions different?
While Roth and after-tax contributions both use after-tax dollars, qualified withdrawals from a Roth account are tax-free, including both the initial principal and any earnings. Withdrawals from an after-tax account are subject to taxation (specifically, the growth is taxed).
You know how a square is a rectangle, but a rectangle isn’t a square? A similar premise applies here. Roth is technically an "after-tax" contribution (money goes into your retirement account after taxes), but an after-tax contribution is NOT a Roth contribution. Roth offers less of a tax burden on the backend, while after-tax creates more.
An overview of 401(k) contribution limits
A contribution limit refers to the total amount of money you’re allowed to put into a retirement account, like a 401(k) or 403(b), in a given year. If you exceed this amount and don’t correct it, you may be subject to tax penalties.
It might feel ironic to be penalized for saving, but having a limit helps the government keep retirement accounts in check. In other words, it prevents people from stashing away unlimited amounts of money tax-free.
But what not every saver realizes is that there are actually multiple contribution limits at play. While most people think of their annual 401(k) contribution limit as one number, that’s not necessarily the case. Understanding the different contribution limits can shed light on when an after-tax contribution makes sense (assuming your employer allows it). Let’s get into it.
Annual deferral limit
The annual deferral or contribution limit refers to how much money you can contribute as an employee to your 401(k) or 403(b) through pre-tax or Roth contributions. This is the limit most people think of when they hear “contribution limit.” As of 2026, the annual deferral limit is $24,500.2
Catch-up contributions
Those over 50 can actually contribute extra to their retirement accounts beyond the annual deferral limit. This is known as a “catch-up contribution,” and the limit is $8,000 for 2026.2
For those between the ages of 60-63, there’s yet an even higher catch-up contribution limit (often referred to as a “super” catch-up contribution), which is capped at $11,250 in 2026.2
If you’re still working and between the ages of 60 and 63, you could contribute a total of $35,750 pre-tax to your retirement accounts, between the pre-tax annual deferral limit and the catch-up contribution.
Total contribution limit
The total contribution limit refers to the absolute total amount that can be contributed to your retirement accounts between both employees and their employers (who often contribute to your retirement account through employer matching). This number changes every year, and for 2026, the total contribution limit is $72,000.3
But if the pre-tax and Roth deferral limit maxes out at $35,750 as we discussed above… How are employees even getting close to the $72,000 limit? Employer matching only goes so far, since it’s typically a small percentage of the employee’s salary or capped at a dollar amount.
This is where after-tax contributions can come in.
Your total contribution limit ($72,000) = pre-tax and Roth contributions + employer matching contributions + after-tax contributions (if your plan allows them).
Why do after-tax contributions matter?
Since the pre-tax limit maxes out at $35,750 (for employees between the ages of 60 and 63), after-tax contributions allow you to go beyond that limit. Consider taking advantage of the higher total contribution cap and save up even more for retirement.
After-tax contributions may also be helpful in the event your plan doesn’t offer a Roth 401(k). Instead, you may be given the option to make after-tax contributions.
Under certain circumstances (meaning you’re at the mercy of your plan’s allowances), you may be able to even conduct a mega backdoor Roth strategy. This is a complicated strategy that involves transitioning after-tax contributions into a Roth account, essentially bypassing the Roth IRA income limits while maximizing your annual contributions. However, not all employer plans allow after-tax contributions or in-service rollovers, and you’ll need to confirm what’s possible with your plan administrator.
Additionally, after-tax contributions are not necessarily a fit for everyone and often depend on certain factors, such as your income, how much you have saved for retirement (and in what type of accounts), and employer contributions.
For example, if your employer matches a particularly high amount for pre-tax/traditional contributions, you may opt to prioritize those contributions over Roth or after-tax.
When do after-tax contributions make sense?
It can be helpful to think of after-tax contributions as an extra and separate bucket in your plan. They can be an effective way to top off your retirement savings after you’ve contributed to other types of retirement accounts. That being said, after-tax contributions usually make the most sense for high earners, who are more likely to end up with extra money to put aside and who desire to maintain their elevated lifestyle into retirement.
Final verdict: Are after-tax contributions right for you?
To summarize, pre-tax contributions help reduce your tax bill now. But directing your retirement savings to a Roth account, whether it’s a Roth 401(k) or Roth IRA, may set you up for potentially tax-free income later on. And when your employer allows for after-tax contributions, you have the opportunity to save beyond the usual contribution limits—though unless you conduct a rollover immediately to a Roth account, you could be missing out on potentially tax-free withdrawals in retirement.
As with all investing decisions, it’s important to reflect on your full financial picture before deciding if after-tax contributions are the best use of your funds. If you are contemplating stashing additional after-tax funds away in your retirement account, it may help to consider your other financial priorities first. Are you still paying down debt, funding your taxable investment account, and padding your emergency fund? These are all important ways to secure a stronger financial future—and protect your retirement savings.
While after-tax contributions can pave the way for a well-funded retirement, tending to other financial priorities before parking your funds in an after-tax account may make more sense (though that decision will be different for everyone).
If you’ve reviewed what your plan administrator allows and are still not sure what to do, consider reaching out to a financial advisor to help weigh your options and figure out the best path to build a comfortable future.
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