If you participate in a company 401(k) plan, you may already be familiar with the two most common ways to save: traditional pre-tax contributions and Roth contributions. But some plans offer a lesser-known third option: after-tax contributions to a traditional 401(k) account.
For certain savers, especially those who have already maxed out their elective deferrals, this feature can provide an additional way to build retirement savings and create tax basis in the account.
As with any retirement planning strategy, though, the tax rules can be complex, and the benefits depend on how the plan is structured and how the contributions are ultimately used.
Traditional vs. Roth deferrals
For 2026, 401(k) elective deferral contributions are generally limited to $24,500. If you’ll be 50 or older at year end, you can make additional elective deferral contributions, called “catch-up” contributions. The 2026 catch-up contribution limit is either $8,000 or $11,250, depending on your age. However, if your 2025 salary exceeded $150,000, any catch-up contributions must be made to a Roth 401(k) account.
When you make pre-tax elective deferrals to a traditional 401(k), the contributions aren’t included in your taxable income for the year, but they’re still subject to Social Security and Medicare taxes (collectively called FICA tax). The account funds can grow on a tax-deferred basis, and you’ll owe income taxes on distributions — both those attributable to contributions and those attributable to growth.
When you make after-tax Roth 401(k) elective deferrals, the contributions don’t reduce your taxable income. So, they’re subject to both income tax and FICA tax. The payoff is that earnings in your Roth 401(k) account are allowed to accumulate income-tax-free and you can take income-tax-free qualified withdrawals from the account once you meet the requirements. (Generally, qualified distributions are those after age 59½ if the account has been open at least five years.)
How after-tax contributions are different
If your 401(k) plan allows non-Roth after-tax contributions, they’re treated as part of your taxable wages. Therefore, these contributions are subject to income tax and FICA tax. You may owe state and local income taxes, too. Because they don’t go into a Roth account, they aren’t eligible for all the tax benefits Roth accounts offer.
So, you might be thinking, “why would I want to make after-tax contributions?” The answer is to get more money into your 401(k) account, where it can accumulate income and gains without being taxed until you start taking withdrawals. These contributions aren’t subject to the annual elective deferral limit. So you can make them after you’ve maxed out that limit, including catch-up contributions, if applicable.
However, there’s still a limit on total additions that can be made each year to your 401(k). Including your elective deferrals (except for any catch-up contributions), your after-tax contributions and any employer contributions, 2026 contributions can’t exceed the lesser of: 1) $72,000 or 2) 100% of your compensation.
Also, after-tax contributions create tax basis in your account, which means that the after-tax amount contributed can eventually be withdrawn tax-free. (But withdrawals attributable to growth on that amount will be taxable, a significant difference from qualified Roth distributions.)
After-tax contributions in action
To illustrate how these contributions work, here’s an example: Let’s say your employer sponsors a 401(k) plan with a 50% company match, your 2026 salary is $150,000 and you’re under age 50. The plan allows employees to make after-tax contributions. You max out your elective deferral limit by contributing $24,500 to your traditional 401(k) account. Your employer makes a matching contribution of $12,250. That means you’re allowed to make up to $35,250 in after-tax contributions ($72,000 – $24,500 – $12,250) this year. You decide to make $10,000 of after-tax contributions.
- Your $24,500 of elective deferral contributions aren’t included in your taxable wages for federal income tax purposes but they are subject to FICA tax withholding.
- Your employer’s $12,250 matching contribution is exempt from federal income tax and FICA tax.
- Your $10,000 after-tax contribution is included in your taxable income and is subject to federal income tax and FICA tax. But it creates $10,000 of tax basis in your 401(k) account, which can be withdrawn tax-free.
Be aware that 401(k) plans are subject to complicated nondiscrimination rules intended to prevent plans from operating in favor of highly compensated employees as opposed to rank-and-file workers. In most cases, nondiscrimination rules won’t impact the ability of an employee to make after-tax contributions, but there may be exceptions.
Beyond elective deferrals
While after-tax, non-Roth 401(k) contributions don't provide the immediate tax benefits of traditional pre-tax deferrals or the long-term tax-free growth potential of Roth accounts, they can offer a valuable opportunity to save beyond the standard contribution limits. For individuals who have already maximized their elective deferrals and are looking for additional tax-advantaged retirement savings options, these contributions may be worth considering. Because plan provisions and tax implications vary, it's important to evaluate how this strategy fits into your overall financial and retirement goals. Contact your Rudler, PSC advisor at 859-331-1717 to discuss whether after-tax 401(k) contributions could play a beneficial role in your retirement planning strategy.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Josh Myers, Senior Accountant and Becca Thorman, CPA, CVA.
If you would like to discuss your particular situation, contact Josh or Becca at 859-331-1717.
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