Grand Rapids Business Daily

I have a 401K plan at work. It gives me the option to select contribution percentages for both?

PRE-tax and AFTER-tax dollars. If I contribute $$ using AFTER-tax dollars, would that have the same principals as the ROTH IRA or other ROTH plans in general? Would my AFTER-tax contributions into my 401K plan grow tax free and also be TAX free when I go to withdraw it? Thank you.

Public Comments

1. Yes and yes good job investing in your future
2. The good news is that your after tax contributions will grow tax deferred (not tax free) until you do withdraw it.. (Tax free is of course always better)..Contributing money after tax to a 401(k) does not stop the earnings from being taxed when you withdraw this money, only the amount of your after tax "contributions" can be taken out tax free, not the earnings on it.. a prorated amount of your futute distributions will be coded as non taxed contribution the rest will have to be included in income. This differs from a ROTH IRA where everything withdrawn is tax free, no matter what your original contribution was.. Some new (& amended old 401K) plans offer a ROTH 401(k) attached to the traditional 401(k) for exactly what you’re trying to do, make after tax contributions and be able to withdraw the earnings tax free. if your company doesn't have this ROTH 401(k) feature combined with its regular 401(k) use an outside ROTH to get the great benefit of tax free earnings..