an_asker wrote:My wife recently got a new job where the company offers the 401k and the Roth 401k. This is the first time either of us have had the ability to save into a Roth 401k.
An employee can save up to the maximum permissible amount (pre-tax) in the 401k, then add more (after-tax) in the Roth 401k. I am assuming that this Roth 401k will be tax-free at withdrawal (though I don't remember if the paperwork states that or not). Either way, it is obvious that the 401k and the Roth 401k can be funded concurrently.
My question is --> Is it permissible to contribute to all three of them concurrently?
retiredjg wrote:Welcome to the forum!
I think you may be confused. You can contribute to both traditional 401k and Roth 401k, but the total for both together is $17,500k this year (more if age 50 or older). You can't do $17.5k to each.
If she is allowed to contribute $17.5k to traditional 401k and also contribute to something else "after-tax", it is probably "after-tax employee contributions". This is not the same thing as Roth 401k. This option is available in many plans but is generally unknown and often misunderstood.
After tax employee contributions can be a very good thing if she is allowed to roll that money out to Roth IRA periodically. After tax employee contributions are not a particularly good thing if she cannot roll that money out to Roth IRA periodically. Before deciding whether to contribute, she needs to learn more about what her options actually are.
Yes, you can contribute to traditional 401k, after tax contributions in 401k, and Roth IRA all at the same time. It might or might not be a good idea. This depends on the quality of funds she has to choose from, the quality of funds you have to choose from (if you have a plan at work), how much money can be saved each year, and some other things like tax brackets.
an_asker wrote:That is exactly my confusion about. I'll go home tonight and read the literature once more. It specifically talks of after-tax contributions to a Roth 401(k). Let's see.
retiredjg wrote:an_asker wrote:That is exactly my confusion about. I'll go home tonight and read the literature once more. It specifically talks of after-tax contributions to a Roth 401(k). Let's see.
The terminology is extremely confusing.
Contributions to Roth 401k are indeed "after tax". But Roth 401k is not the same thing as after-tax employee contributions, which are also after tax.
The $17.5k that can be contributed is called an "elective deferral". You may think of this as an employee contribution, but the term "employee contribution" actually means something else.
Elective deferral contributions can go into a traditional account or into a Roth account, but the total of your elective deferrals is $17.5k this year. Many people think that is all you can contribute, but that is not correct. The law allows more contributions (up to a total of $51k this year I believe) but the law does not allow more contributions to be stashed away without tax. That is where "employee contributions" come in.
An employee can contribute more to the 401k, separately from the 17.5k elective deferral, and that employee contribution must go in after tax. Technically, the name is "employee contributions" but it is frequently called "after tax contributions". To avoid confusion, I usually call it "after tax employee contributions". Yes, I know that sounds like Roth 401k, but it is something different.[...]
Good luck! Let us know what you find out.
Roth 401(k) contributions are irrevocable, such that once money is invested into a Roth 401(k) account; it cannot be moved to a regular 401(k) account.
Employees can roll their Roth 401(k) contributions over to a Roth IRA account upon termination of employment.
It is the employer's decision whether to provide access to the Roth 401(k) in addition to the traditional 401(k). Many employers find that the added administrative burden outweighs the benefits of the Roth 401(k).
The Roth 401(k) program was originally set up to sunset, or no longer be in place, after 2010 along with the rest of EGTRRA 2001. The Pension Protection Act of 2006 extended it.
Unlike Roth IRAs, owners of Roth 401(k) accounts (designated Roth accounts) must begin distributions at age 70 and a half, as with IRA and other retirement plans. (Pub 4530)
ray.james wrote:For after-tax contributions, do earnings/dividends grow tax free?
What is difference between having a taxable account VS contributing after tax to 401k beyond limit.
retiredjg wrote:The fact that she has a Roth 401k option does not eliminate the possibility of also being eligible for after tax employee contributions up to the $51k limit. She might have all 3 options (traditional 401k and Roth 401k up to the $17.5k limit and after tax employee contributions up to the $51k limit).
Did you and the rep talk about that or were you only talking about the $17.5k part? The fact that you thought her limit was $51k didn't come out of thin air, did it?