In this post you will learn :
- Why invest in Roth401k vs traditional401k
- Difference between Roth401k and aftertax 401k
- Is the after401k for you
For the last few years, I have been contributing to my Roth-401k instead of my traditional 401k. It ends up the same, except for the fact that Roth-401k allows you to save more since the limit is the same for Roth401k and traditional 401k.
Now my employer allows me to contribute to an after-tax 401k. Let's see the difference between the Roth 401k and Aftertax 401k.
- Contribution limit is 18000$ (2016) .
- Withdrawal for contribution and earnings not taxed (assuming it's a qualified distribution).
- Contribution limit is 53000$ and includes:
- 401k (roth or traditional) + employer match + aftertax 401k. 
- Withdrawal for contributions not taxed
- Withdrawal for earnings are taxed. This is the most important distinction.
Both Roth-401k and After-tax 401k must follow the 401k distribution rules:
- Done after age 59 ½ without penalty
- Money held for 5 years in account
- Need minimum required distributions
What to do with an after-tax 401k:
The trick here is to rollover your aftertax 401k contribution to a Roth IRA plans. This way you can have earning withdrawal without any taxes. Roth IRA also doesn't have the minimum required distribution.
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