Have you reached your annual 401(k) contribution limit? Although you may not realize it, some workplaces allow the roof to be pushed a little higher.
More and more employers are offering the option of after-tax contributions to 401(k) plansand that can increase the amount you’re allowed to set aside for retirement up to $61,000 a year.
This compares to the standard pre-tax contribution limit of $20,500, plus a catch-up contribution of $6,500 for those age 50 or older.
About 21% of companies with 401(k) plans now offer after-tax contribution option, according to Vanguard. This number has steadily increased, from 17% in 2017.
People who use the after-tax feature to contribute to their 401(k) often do so with the intention of moving the money into a Roth IRA, increasing the pool of tax-free money they can draw from. retirement.
Are after-tax contributions the right option for you? Maybe. But there are other strategies that might work better.
For example, some experts believe it is better to keep money in a taxable account. This is because the tax rate on long-term capital gains in a taxable account is currently set at a relatively low rate of 20%.
Compare that to the higher ordinary income tax rates – which top out at 37% – you may owe on earnings from after-tax contributions when you withdraw or renew them.
Still, there are people for whom making after-tax contributions is a great option. So before you make up your mind, stop by the Money Talks News Solutions Center and find a financial advisor who can discuss the pros and cons of making after-tax contributions to a 401(k) plan.
How to Learn About Money
Deciding whether or not to make after-tax contributions is complicated. But you can make it easier by learning some money basics.
In the Money Talks News course Simplified money, MTN Founder Stacy Johnson offers 14 weeks of courses that can improve your financial life in all of the following areas:
- Estate planning
After completing these lessons, you’ll be ready to manage your money more effectively while spending less time getting the results you want. As Stacy writes:
“Whatever your situation, understanding and learning to control your money will improve your life. If you’re rich, you want to stay that way. If you’re not, you want to get there.
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