After-tax contribution

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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.

References in periodicals archive ?
Nancy's company allows employees to make additional aftertax contributions (many employers do), which she has done.
Employee deferrals to the Roth 401(k) are after-tax contributions and governed by the rules applicable to aftertax contributions in an employer plan.
In addition individuals generally will be able to move aftertax contributions from their pension plan into a traditional IRA.
Most notably, the 1997 Tax Relief Act created the Roth individual retirement account, through which aftertax contributions are accumulated and can be withdrawn tax-free at retirement age.
However, both Paul and Lois can make full aftertax contributions to a traditional IRA for 2012.
The rate of matching contributions cannot increase as the rate of an employee's aftertax contributions increases.
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.
Because Roth IRA withdrawals are not taxed under the normal annuity rules, taxpayers can recover aftertax contributions first to pay college costs and wait to distribute earnings tax-free after retirement.
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 1.72-9