ASK KIM
Pass up After-tax 401(k) Contributions
by Kimberly Lankford

I am older than 50 and can contribute 10% of my income -- the company limit -- to my 401(k). Can I also make after-tax contributions?

It's up to your employer whether to allow after-tax contributions. But even if your plan does allow them, think twice before you add after-tax money to your 401(k) retirement plan.

A Roth IRA would be a better choice for the first $4,500 of extra money you can stash away (because you're older than 50). Earnings on contributions grow tax-deferred in both 401(k)s and Roth accounts.

But Roth withdrawals are completely tax-free in retirement, whereas all earnings on the after-tax 401(k) contributions will be taxed in your top bracket when you withdraw the money. Also, mixing pre- and post-tax money in a 401(k) can create tax headaches when you begin withdrawals.

For more information on how to make the most of your IRA, see our IRA Owner's Manual.