In-service withdrawals come with some potentially complicated rules so it’s important to understand the rules the IRS has and those of your retirement plan. There is a big catch though: Not all plans allow withdrawals while you’re still with the company and your retirement plan may have some rules around the requirements for rolling out of the plan. You can roll over after-tax contributions to a Roth IRA, and it is possible to do that before age 59½. IRA rollover without an in-plan conversion The options available to you will depend on your situation.ġ. If your employer does not offer a Roth option or the in-plan Roth conversion feature, you can still roll over your after-tax contributions to a Roth IRA. Not all employers offer a Roth option in their retirement plan-or they may not offer the option to do an in-plan conversion. So if you converted in December, the aging requirement might, in practice, be only a bit more than 4 years. The 5-year clock starts on January 1 of the tax year in which the conversion occurred, or the contribution was made, no matter when during the year it actually happened. Satisfying the 5-year aging requirement means that there are at least 5 years between either the year of your first Roth contribution or the year the conversion took place and any withdrawals. So no taxes would be due on withdrawals-as long as they take place after age 59½ and the 5-year aging requirement has been met. That strategy is covered more below.Įarnings in a Roth account grow and may potentially be distributed tax-free as long as certain conditions are met. So you may want to roll those earnings to a traditional IRA instead. But, converting the earnings associated with those contributions to the Roth option in your workplace savings plan or a Roth IRA would be a taxable event. When you convert after-tax balances to Roth, no taxes would be due on the conversion of your contributions. There are a couple of different ways to accomplish that, including rolling over your balances to an IRA or doing an in-plan conversion if it's offered by your employer along with a Roth option. You could then go a step further and convert your after-tax contributions to a Roth account. That's a powerful benefit on its own-but that's not the end of the story. Making after-tax contributions allows you to invest more money with the potential for tax-deferred growth. Potential strategies for after-tax 401(k) contributions Employer nonelective contributions, typically profit sharing.What your employer can contribute on your behalf After-tax contributions to your workplace savings plan (if allowed by your employer).Elective deferrals (either tax-deferred, Roth, or a combination): Up to $22,500 in 2023 ($30,000 including catch-up).The IRS allows a total of up to $66,000 of employer and employee contributions to be saved in a 401(k) for 2023 (and an additional $7,500 in employee catch-up contributions for people age 50 and over). As you’re calculating the amount you can contribute, include any match from your employer so those “free money” contributions don’t get crowded out. Check with your plan administrator if the rules seem unclear.īe aware also that there is an annual maximum limit on contributions from all sources-including your employer. After-tax contributions can be made at the same time as your regular contributions-just be sure that your after-tax contributions aren't set so high that they will prevent you from fully making pre-tax and Roth contributions first. One quick note about after-tax contributions-you may not have to wait until you’ve hit the annual contribution limit during the year to make them. These are a third type of contribution to your workplace savings plan, in addition to pre-tax and Roth. Once you see that you will max out your contributions, you may want to consider making after-tax contributions as well. Unlike Roth IRAs, there are no income caps on Roth contributions in a workplace savings account like a 401(k).
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