If you participate in a company 401(k) retirement plan, you're likely familiar with traditional pre-tax contributions and Roth 401(k) contributions. However, some employer-sponsored retirement plans offer a third option that is often overlooked: after-tax non-Roth 401(k) contributions. For employees looking to maximize retirement savings and create greater tax diversification, this strategy may provide additional flexibility beyond standard contribution limits.

Traditional vs. Roth deferrals

Understanding the differences between traditional, Roth, and after-tax contributions is an important part of retirement planning. For 2026, 401(k) elective deferral contributions are generally limited to $24,500. If you'll be 50 or older at year end, you can make additional elective deferral contributions, called "catch-up" contributions. The 2026 catch-up contribution limit is either $8,000 or $11,250, depending on your age. However, if your 2025 salary exceeded $150,000, any catch-up contributions must be made to a Roth 401(k) account.

When you make pre-tax elective deferrals to a traditional 401(k), the contributions aren't included in your taxable income for the year, but they're still subject to Social Security and Medicare taxes (collectively called FICA tax). The account funds can grow on a tax-deferred basis, and you'll owe income taxes on distributions, both those attributable to contributions and those attributable to growth.

When you make after-tax Roth 401(k) elective deferrals, the contributions don't reduce your taxable income. So, they're subject to both income tax and FICA tax. The payoff is that earnings in your Roth 401(k) account are allowed to accumulate income-tax-free and you can take income-tax-free qualified withdrawals from the account once you meet the requirements. (Generally, qualified distributions are those after age 59½ if the account has been open at least five years.)

How after-tax contributions are different

If your 401(k) plan allows non-Roth after-tax contributions, they're treated as part of your taxable wages. Therefore, these contributions are subject to income tax and FICA tax. You may owe state and local income taxes, too. Because they don't go into a Roth account, they aren't eligible for all the tax benefits Roth accounts offer.

So, you might be wondering why someone would make after-tax contributions instead of simply contributing to a traditional or Roth 401(k). The primary advantage is the ability to save beyond the standard 401(k) contribution limit and build additional retirement assets within a tax-advantaged account.

These contributions aren't subject to the annual elective deferral limit. So you can make them after you've maxed out that limit, including catch-up contributions, if applicable.

However, there's still a limit on total additions that can be made each year to your 401(k). Including your elective deferrals (except for any catch-up contributions), your after-tax contributions and any employer contributions, 2026 contributions can't exceed the lesser of: 1) $72,000 or 2) 100% of your compensation.

Also, after-tax contributions create tax basis in your account, which means that the after-tax amount contributed can eventually be withdrawn tax-free. (But withdrawals attributable to growth on that amount will be taxable, a significant difference from qualified Roth distributions.)

Example: Using After-Tax Contributions to Increase Retirement Savings

For high-income earners and employees who consistently max out their annual 401(k) contributions, after-tax contributions can provide another opportunity to increase long-term retirement savings.

Let's say your employer sponsors a 401(k) plan with a 50% company match, your 2026 salary is $150,000 and you're under age 50. The plan allows employees to make after-tax contributions. You max out your elective deferral limit by contributing $24,500 to your traditional 401(k) account. Your employer makes a matching contribution of $12,250. That means you're allowed to make up to $35,250 in after-tax contributions ($72,000 – $24,500 – $12,250) this year. You decide to make $10,000 of after-tax contributions.

Your $24,500 of elective deferral contributions aren't included in your taxable wages for federal income tax purposes, but they are subject to FICA tax withholding.
Your employer's $12,250 matching contribution is exempt from federal income tax and FICA tax.
Your $10,000 after-tax contribution is included in your taxable income and is subject to federal income tax and FICA tax. But it creates $10,000 of tax basis in your 401(k) account, which can be withdrawn tax-free.

Be aware that 401(k) plans are subject to complicated nondiscrimination rules intended to prevent plans from operating in favor of highly compensated employees as opposed to rank-and-file workers. In most cases, nondiscrimination rules won't impact the ability of an employee to make after-tax contributions, but there may be exceptions.

Beyond elective deferrals

If you've been maxing out your 401(k) contributions, after-tax non-Roth contributions may offer an additional way to grow retirement savings, increase tax diversification, and build long-term financial flexibility.

Because retirement plan rules and tax implications vary by employer plan and individual circumstances, it's important to evaluate whether this strategy aligns with your overall retirement goals. Our team can help you assess your options and determine the most effective retirement savings strategy for your situation.

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