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are accumulated and can be withdrawn tax-free at retirement age.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 company cannot match an employee's aftertax contributions or match 401(k) deferrals that exceed 6% of the employee's compensation.
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.
To distinguish between the tax attributable to pre- and aftertax contributions, an exclusion ratio must be calculated.
Conventional Aftertax contributions exclusion = annual benefit x life ratio expectancy from Treasury regulations section 1.
WHEN PART OF AN annuity benefit represents a return of aftertax contributions, an alternative safe harbor method can be used to determine the excludable amount.