Have you reached the ceiling on your annual 401(k) contributions? Although you might not realize it, some workplaces make it possible to push up the roof a bit higher.
More employers are offering the option of after-tax contributions to 401(k) plans, and that can raise the amount you are allowed to put away for retirement to as much as $61,000 annually.
That compares with the standard pre-tax contribution limit of $20,500, plus a catch-up contribution of $6,500 for those who are age 50 or older.
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About 21% of companies with 401(k) plans now offer the option of after-tax contributions, according to Vanguard. That number has steadily risen from 17% in 2017.
People who use the after-tax feature to contribute to their 401(k) often do so with the intention of rolling the money over into a Roth IRA, thereby boosting the pot of money they can draw on tax-free in retirement.
Are after-tax contributions the right option for you? Possibly. But there are other strategies that might work out better.
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For example, some experts think you are better off keeping the money in a taxable account. That's because the tax rate on long-term capital gains in a taxable account is currently set at a relatively low 20%.
Compare that to the higher ordinary income tax rates - which currently top out at 37% - that you could owe on the gains of after-tax contributions when you withdraw them or roll them over.
Still, there are people for whom making after-tax contributions is a great option. So, before you decide, stop by the Money Talks News Solutions Center and find a financial adviser who can discuss the pros and cons of making after-tax contributions to a 401(k) plan.
The decision about whether to make after-tax contributions is a complicated one. But you can make it easier by learning a few money basics.
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