How After-Tax 401(k) Contributions + In-Plan Roth Conversions Can Multiply Your Retirement Savings

Most companies and corporations incentivize employees to save for retirement. More often than not, they’ll do this through a 401(k) plan. When you first onboarded with your company, you were likely given the choice to participate in a 401(k). While you might increase your contributions each year, it’s possible the account otherwise falls on the back burner.

But for some high earners, there might be room in your 401(k) to multiply your retirement savings each year—you just need to know where to look. Many plan sponsors give employees the option to make after-tax contributions, which may be converted to Roth, leading to tax-free withdrawals in retirement (we’ll get into the specifics later).

Let’s take a closer look at how 401(k)s work, what after-tax contributions are, and how to leverage them to increase your retirement savings.

Part 1: The Basics of Your 401(k)

A 401(k) is an employer-sponsored retirement account that offers employees a tax-advantaged way to save for retirement. Called a “defined contribution plan,” a 401(k) enables employees and employers to contribute to the account.

Employees generally choose a set percentage of their pay to defer into the plan. The funds are automatically deferred to the 401(k) plan on your behalf. Depending on the plan design, you may have a choice in how your contributions are invested.

401(k) and Taxes

Often times, your contributions to your 401(k) are taken out of your paycheck before taxes. As such, they’re aptly named “pre-tax contributions.” The amount you contribute to your 401(k) in pre-tax contributions will reduce your taxable income for the year.

Conversely, you may have the option to contribute to a Roth 401(k) instead. If that’s the case, your contributions will not lower your taxable income for the year. The trade-off? The funds in a Roth 401(k) grow tax-deferred, and qualified distributions are tax-free as well (including both the principal amount plus earnings).

For a Roth withdrawal to qualify for the tax-free treatment, you must have opened and made your first contribution to the account at least five years ago and meet one of the following criteria:1

• You’re 59.5 or older
• You’re considered disabled, as defined by the IRS
• You’re a beneficiary of an inherited account

The IRS limits the amount of pre-tax or Roth contributions you’re able to make annually to your 401(k) and other tax-advantaged retirement accounts.

For 2025, the deferral limit is $23,500 per taxpayer. If you’re over 50, you will be allowed to make catch-up contributions. These start at $7,500 and increase to $11,250 for employees between the ages of 60 and 63 (this “super” catch-up contribution is new as of 2025).

Here’s what the pre-tax contribution limits look like, based on your age:2

• Up to age 49: $23,500
• Ages 50-59: $31,000
• Ages 60-63: $34,750
• Age 64 and above: $31,000

The funds in either your traditional 401(k) or Roth 401(k) will grow tax-deferred, meaning you won’t have to pay tax (capital gains or ordinary income tax) on the earnings each year. This allows your money to stay invested and grow uninterrupted between when the contributions are made and when you withdraw (presumably in retirement).

Once you reach age 59.5, you may be allowed to make penalty-free withdrawals from your 401(k). Keep in mind, if you try to withdraw before then, you’ll be hit with an early withdrawal penalty—unless you take out a loan from your 401(k) or meet one of the IRS’s exceptions.

Withdrawals from your traditional 401(k) are subject to ordinary income tax—remember, up until now, neither the original contributions nor the earnings have been taxed. Once you reach age 73 (or age 75, starting in 2033), you will be required to withdraw a minimum amount from your pre-tax 401(k) each year. These are called “required minimum distributions” or RMDs, and they’re calculated based on your account balance by the end of the previous calendar year and the IRS uniform lifetime table. ROTH 401ks are not subject to RMD rules.

Take Advantage of Employer Matching

Many employers incentivize employees to contribute to their 401(k) by offering what’s called “employer matching.” For every dollar or salary percentage an employee contributes, the employer will match it (usually up to a certain amount).

For example, let’s assume your employer matches your contributions by 50% up to 3% of your salary. If you earn $200,000, 3% of your salary is $6,000. If you contribute 3% of your salary, they’ll chip in an additional $3,000 matching, based on the figures above.

Employer matching is essentially free money. Most employees will benefit from contributing to their 401(k)s at least enough to max out the matching contributions (but ideally, maxing out the IRS annual contribution limits as well).

One note on employer matching: Often, employers will implement a vesting schedule for employer matching. Should you leave the company before the vesting period has ended, you may lose all or some of your employer matching contributions. You will, however, be entitled to anything you contributed to the account, no matter how long you stay with the company.

Part 2: After-Tax Contributions

So far, we’ve focused on pre-tax and ROTH contributions and how they lower your tax bill now, while helping you grow funds for retirement. The catch is, pre-tax and ROTH contributions are limited annually by the IRS (if you’re under 50, the cap is $23,500 for 2025).

For high earners, especially, the pre-tax contribution may feel low, and you wish you could save more. If you’re interested in increasing contributions beyond the pre-tax limit, your plan may allow you to make after-tax contributions as well.

Just as they sound, after-tax contributions to your 401(k) are automatically deferred from your paycheck to your 401(k). While these additional contributions will help you grow your retirement savings further, they do not lower your taxable income for the year (as your pre-tax contributions would).

To determine the maximum after-tax deferral to a 401(k) plan, you’ll need to first know the total amount you and your employer are allowed to contribute collectively to a defined-contribution retirement plan. In 2025, this number is $70,000, though this limit is adjusted annually.3

If we assume you max out your pre-tax contributions at $23,500 and your employer offered no matching, the maximum amount you could contribute in after-tax contributions is an additional $46,500.

Now, let’s say your employer provides a $10,000 matching contribution. Your pre-tax contribution of $23,500 plus the additional $10,000 employer matching brings your total up to $33,500. Instead of $46,500, you can now contribute up to $36,500 in after-tax contributions.

Let’s take a closer look for 2025:

The total contribution limit remains the same, even if you’re eligible for catch-up contributions. Using the same example as above, let’s look at it again, assuming you’re 62 and maxing out pre-tax contributions at $34,750:

Part 3: Converting After-Tax to Roth

While after-tax contributions to a traditional 401(k) have similar characteristics to Roth contributions, they aren’t exactly the same. The earnings on after-tax contributions in a traditional 401(k) will still be subject to ordinary income tax.

Here’s a closer look at the difference between after-tax and Roth 401(k) contributions:

Roth accounts have the tax advantage over after-tax contributions, since they allow you to enjoy potentially tax-free withdrawals in retirement. For that reason, if you’re able to make after-tax contributions to your 401(k), you might want to take it a step further and complete a Roth conversion—essentially transition those funds from the traditional 401(k) into a Roth account.

There are a few possible ways to do this, depending on what your employer’s plan offers.

Option #1: In-plan Roth conversion

The simplest option is to immediately roll the after-tax dollars into a Roth 401(k). This is only possible, however, if your plan allows for “in-plan conversions.” Assuming they do, you should be able to fairly easily convert the after-tax dollars to the Roth account. Just keep in mind, if your after-tax contributions earn any growth before converting to the Roth account, you will owe ordinary income tax in the year the conversion takes place. The good news is, some companies allow automatic in-plan conversions. The after-tax dollars would be automatically rolled into a Roth account, which would eliminate the possibility of additional earnings prior to conversion.

For example, say you contribute $30,000 in after-tax contributions to your traditional 401(k). At the end of the year, you decide to do an in-plan conversion and transition that $30,000 to your plan’s Roth 401(k). Before the conversion happens, however, the funds accumulate an additional $2,000 in earnings. You will be required to pay ordinary income tax on those earnings. But once the conversion is complete, everything in the account will grow tax-deferred, and qualified withdrawals will be tax-free.

You may be able to roll the funds into a Roth IRA once the Roth conversion is complete. You might want to roll them over once you leave your employer, for example, so you can continue making contributions or consolidate accounts.

Option #2: Roth IRA rollover with no in-plan conversion

If your plan does not allow for in-plan conversions, your options get a little more complicated. Ultimately, if you’d like to convert your after-tax contributions to a Roth account, you’ll need to use a Roth IRA—but without an in-plan conversion option, this transfer may count as a withdrawal from the 401(k).

If your plan tracks contribution sources (meaning it separates out pre-tax versus after-tax contributions), you might have the option to roll out only the after-tax contributions from the 401(k) into a Roth IRA. You could also roll the pre-tax contributions and any growth into a traditional IRA, which would not create a taxable event.

For example, say you leave your current employer and have accumulated $500,000 in your 401(k). Your plan provider does track contribution sources and allows you to take a full distribution of the funds once employment is terminated. If you wanted to avoid triggering a tax bill, you could roll the funds into the following IRAs:

• $250,000 of pre-tax contributions roll into a traditional IRA
• $150,000 in Roth contributions roll into a Roth IRA
• $100,000 in after-tax contributions roll into that same Roth IRA

If your plan does not allow you to separately rollover funds based on the contribution source, you may still be able to rollover into a Roth IRA. The catch is, you’ll be hit with a tax bill for the pre-tax contributions and untaxed earnings.

In either case, you may want to speak to your plan administrator, a financial advisor, and/or a tax professional to discuss the potential immediate and long-term impact of converting your funds to a Roth 401(k) or IRA.

Part 4: Considerations for Employees

Perhaps the biggest hurdle in supercharging your 401(k) with after-tax contributions is determining what your plan actually allows. Do they support after-tax contributions? What about in-plan conversions?

Once you determine what’s available and possible within your account, you need to decide how and when you’d like to make after-tax contributions. Your plan may give you the option to make automatic after-tax contributions with every paycheck, so you can “set it and forget it” throughout the year. Or, you may need to manually request to contribute after-tax dollars to the account—especially if you’re only planning to do so on occasion.

Review Your Cash Flow First

If you’re considering making after-tax contributions to your 401(k), review your current cash flow and other savings strategies first.

Diverting more of your paycheck to your retirement account will, naturally, reduce your take-home pay. Can you comfortably continue to afford your lifestyle and financial obligations with less coming into your checking account each month? If not, this may not be the right time to pursue after-tax contributions.

It’s also worth considering your other options for saving for retirement or long-term goals. For example, a traditional brokerage account is also funded with after-tax dollars, and it has no contribution limit or age restrictions on withdrawals. As long as you hold the assets for more than a year, you may even benefit from more favorable long-term capital gains tax treatment. You can also maintain more independence and control over how your funds are invested, since 401(k) plan options are often limited.

That being said, dedicating more funds towards your retirement accounts can help build lasting financial security, as long as you’re not sacrificing your immediate financial well-being in the process.

Consider Your Tax Bracket Now vs. Later

Remember, pre-tax contributions lower your taxable income now. After-tax contributions produce potentially tax-free income in retirement. As you build out your savings strategy, take your current income into consideration. If you’re in a lower tax bracket now than you expect to be later on (maybe you’re still mid-career or anticipate more equity comp-related tax liability closer to retirement), you may feel more inclined to just cover the tax bill now. If that’s the case, focus your attention on making Roth contributions and after-tax contributions (that are then converted to Roth).

If the opposite is true, you may be hitting your peak earning years or otherwise anticipate less taxable income in retirement. If so, you might be more inclined to max out pre-tax contributions now, take the deduction while your tax rate is high, and then contribute what’s left in after-tax dollars (which are then converted to Roth).

Need Help Reviewing Your Retirement Savings Strategy?

Zajac Group helps high earners make the most of their workplace benefits, from equity compensation to important retirement savings vehicles, like 401(k)s. If you have more to contribute to your 401(k) beyond the pre-tax contribution limit, after-tax contributions are one way to help grow your savings in a tax-deferred way.

Want to review your options more closely? Send us a message, we’d be happy to review your current savings strategy and find opportunities to balance your long-term savings goals and tax concerns with your financial needs today.

Sources:

1 Roth IRAs

2 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000

3 2025 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living