How after-tax contributions work
Some 401(k) plans, and some 403(b)s, let you save three ways from each paycheck. A pre-tax deferral lowers your taxable pay now and is taxed when withdrawn. A Roth deferral is taxed now and comes out tax-free later if you meet the rules. A non-Roth after-tax contribution is taxed now, like Roth, but only the contribution itself comes back tax-free. The growth on it is tax-deferred, then taxed as ordinary income when it leaves the plan.
That makes the money a hybrid. The contributions become your basis, which the plan tracks and reports when money comes out. The earnings behave like pre-tax money. Leave the contributions in for decades and most of the balance can end up being taxable growth.
People use them anyway because of room. After-tax contributions aren’t elective deferrals, so they don’t compete with the $24,500 limit. They count against the section 415(c) ceiling on everything added to your account in a year, $72,000 for 2026, alongside your deferrals and your employer’s contributions. Whatever that ceiling has left can go in as after-tax money, if the plan accepts it.
After-tax vs. Roth vs. pre-tax contributions
The names blur because Roth money is also after-tax money. The differences are what happens to the growth and which limit and test the contribution uses.
A Roth 401(k) deferral uses your elective-deferral room and is tested with pre-tax deferrals in the ADP nondiscrimination test. Once a withdrawal is qualified, its growth is tax-free, and since 2024 designated Roth accounts have no lifetime required minimum distributions. A non-Roth after-tax contribution uses only annual-additions room, goes into the ACP test with matching contributions, and grows tax-deferred, with the earnings taxable later. Like the rest of the plan’s non-Roth money, it is subject to required minimum distributions.
Because pre-tax and Roth deferrals both get better tax treatment, after-tax contributions usually make sense only once your deferral room is used. They are most valuable in plans that let you convert them to Roth, and they add to your tax diversification by building basis you can later move into a Roth account.
How withdrawals of after-tax money are taxed
You can’t pull out just the tax-free part. Under section 72, each distribution carries a proportional share of basis and earnings. A plan may treat your after-tax contributions and their earnings as a separate contract, as IRS Publication 575 describes, and when it does, that share is figured on the after-tax sub-account alone rather than on the whole plan balance.
Publication 575’s example uses $10,000 of after-tax contributions with $2,500 of earnings, and a $5,000 withdrawal. With separate-contract accounting, $4,000 is tax-free and $1,000 is taxable. Had the plan pooled everything, including $12,500 of employer money and its earnings, only $2,000 would be tax-free. Before 59½, the taxable part can also owe the 10% early withdrawal penalty unless an exception applies.
One older rule still matters for long-tenured workers. After-tax money put in before 1987, in a plan that allowed withdrawals of it as of May 5, 1986, can come out tax-free first under a grandfather rule.
How to move after-tax 401(k) money into Roth
The fix for taxable growth is to move after-tax money into Roth before much growth builds up, which is the whole idea behind the mega backdoor Roth. Your plan may offer an in-plan Roth rollover to its own Roth account, or let you withdraw after-tax money while you still work and roll it to a Roth IRA. Either way the converted contributions are untaxed and the earnings are income that year.
If your plan offers neither, you can separate the pieces when you leave the job or retire. IRS Notice 2014-54 treats payments sent to several destinations at the same time as one distribution, so you can send all the pre-tax money, including earnings on after-tax contributions, to a traditional IRA or new plan, and the after-tax contributions themselves to a Roth IRA, with no tax due.
Be careful where the after-tax dollars land. If they go into a traditional IRA instead of a Roth IRA, they become IRA basis, tracked on Form 8606, and the pro-rata rule then governs every later IRA withdrawal or conversion, including any backdoor Roth IRA you do afterward.
Common mistakes with after-tax contributions
After-tax contributions are easy to misread because “after-tax” sounds like Roth, and the cost of a mistake often shows up years later, when the account is finally drawn on or an old statement can’t be found. The plan reports your basis when money comes out, but keeping your own record of what you put in each year makes a later rollover or tax return much easier to check. The most common errors:
- Choosing after-tax contributions while Roth deferral room is still unused, and usually giving up tax-free growth for no extra benefit.
- Leaving after-tax money unconverted for decades, so most of the balance becomes ordinary income.
- Taking a partial withdrawal expecting only basis back; a proportional share of earnings comes with it.
- Rolling the basis into a traditional IRA by accident, which creates IRA basis and complicates future conversions.
- Assuming all of $72,000 minus your deferrals is available. Employer matches, profit-sharing and forfeitures use the same room.
Illustrative numbers
Splitting a 401(k) with after-tax money at a job change
- Withdrawal
- The non-annuity amount taken out before your annuity starting date
- After-tax contributions
- Your basis not yet recovered
- Balance
- Contributions plus their earnings if the plan treats them as a separate contract; otherwise the whole account
Pre-1987 after-tax money in plans that allowed its withdrawal may come out first, tax-free.
Pre-tax deferrals, match and their earnings$200,000
After-tax contributions (basis)$50,000
Earnings on the after-tax contributions$30,000
Direct rollover to a traditional IRA$230,000, all pre-tax amounts
Direct rollover to a Roth IRA$50,000, the basis
Tax due on the split$0
Because Notice 2014-54 treats both rollovers as one distribution, all $230,000 of pre-tax money, including the $30,000 of earnings on after-tax contributions, stays tax-deferred in the traditional IRA, while the $50,000 of basis starts growing tax-free in the Roth IRA. Had everything gone to a traditional IRA, that $50,000 would have become IRA basis, subject to the pro-rata rule. A traditional IRA that size would also make any later backdoor Roth IRA mostly taxable; sending the pre-tax part to a new employer’s plan, if it accepts rollovers, avoids that.
At a glance
Three kinds of employee 401(k) money in 2026
| Feature | Pre-tax deferral | Roth deferral | After-tax, non-Roth |
|---|---|---|---|
| Taxed when contributed | No | Yes | Yes |
| Earnings taxed when withdrawn | Yes | No, if qualified | Yes, as ordinary income |
| Uses the $24,500 deferral limit | Yes | Yes | No |
| Uses the $72,000 annual additions limit | Yes | Yes | Yes |
| Nondiscrimination test | ADP | ADP | ACP |
| Lifetime RMDs | Yes | No, since 2024 | Yes |
Put it in your plan
After-tax 401(k) in MoneyWhatIf
MoneyWhatIf fits pre-tax elections first, then scales after-tax contribution requests back together when take-home pay can’t cover them, all within the 2026 total-additions ceiling of $72,000 for employee and employer money under age 50. On the Estate page, after-tax 401(k) money is grouped with tax-deferred balances, because its untaxed growth is ordinary income to an heir. Employer-plan nondiscrimination testing isn’t fully represented, and the app can’t confirm that your plan permits the conversion or rollover needed to move the money to Roth.
Common questions
After-tax 401(k) FAQs
Does an employer match apply to after-tax contributions?
Only if the plan’s formula says so. The tax code defines a matching contribution as employer money paid on account of either an elective deferral or an employee contribution, so a plan may match after-tax money, but a 401(k) match formula written on deferrals alone won’t count it. Any match uses the same $72,000 of annual additions room, and matching and after-tax contributions are tested together in the ACP test.
Do after-tax contributions lower my taxable income?
No. They come out of pay after income tax has been figured, so your taxable wages are the same as if you had kept the money. The benefit comes later: the contributions themselves are never taxed again, and if they are converted to Roth, neither is their future growth once withdrawals are qualified.
Can I withdraw after-tax contributions while still working?
Only if your plan allows in-service withdrawals of after-tax money; the plan document sets the rules. Any withdrawal includes a proportional share of earnings, which is taxable and, before 59½, may owe the 10% additional tax. Under Notice 2014-54 you can send the earnings to a traditional IRA and the contributions to a Roth IRA to avoid current tax.
What happens to after-tax contributions when I leave my job?
You can leave them in the plan, roll them to a new employer’s plan that accepts them, or take a full distribution and split it: the pre-tax money, including all earnings on the after-tax contributions, to a traditional IRA or rollover IRA, and the after-tax contributions to a Roth IRA. Sent to both places at the same time, the split is treated as one distribution and costs no tax.
When do after-tax 401(k) contributions make sense?
They are most useful when you have already used your deferral room, your plan lets you convert after-tax money to Roth, much like a Roth conversion of an IRA, and you still have cash to save. Without a conversion route the case is weaker: growth is taxed at ordinary rates on the way out, which a taxable brokerage account holding long-term investments can beat, since its gains may qualify for lower capital-gains rates.