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After-Tax Contribution
(redirected from Aftertax Contributions)

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After-Tax Contribution
A contribution made to a retirement plan with money one has left over after paying taxes. That is, when one makes after-tax contributions to a retirement plan, one has already paid taxes on the contribution. As a result, one does not pay taxes on the withdrawals on the plan made after retirement. After tax contributions are made on Roth IRAs and Roth 401(k)s. See also: Pre-Tax Contributions.

After-tax contribution. An after-tax contribution is money you put into your 401(k) or other employer sponsored retirement savings plan either instead of or in addition to your pretax contribution.

You make an after-tax contribution if you've chosen to participate in a Roth 401(k) or similar tax-free plan rather than a traditional tax-deferred 401(k).

However, if you make excess deferrals, any earnings on the after-tax amount accumulate tax deferred. The disadvantage is that figuring the tax that's due on your required distributions may be more complicated than if you had made only pretax contributions.



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The company cannot match an employee's aftertax contributions or match 401(k) deferrals that exceed 6% of the employee's compensation.
Example: Betty's Roth IRA has a balance of $15,650 in 2004, representing $12,000 in aftertax contributions and $3,650 in, accumulated earnings.
Under the conventional exclusion ratio rules, the taxable (and nontaxable) portions of an annuity distribution are determined as follows: Conventional Aftertax contributions exclusion = annual benefit x life ratio expectancy from Treasury regulations section 1.
 
 
 
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