High-income earners who max out their 401(k) with pre-tax dollars each year may have additional opportunities to supersize their retirement savings with after-tax contributions that can be withdrawn tax-free in the future, depending on their employer’s plan documents.
Annual Pre-Tax Contribution Limits to Employer-Sponsored 401(k) Plans
Each year, the IRS sets the maximum amount that employees and employers can contribute to a workplace 401(k) plan. For example, the individual contribution limit via elective salary deferral in 2025 is $23,500 for individuals age 49 and younger, $31,000 for individuals aged 50 and older, and $34,750 for those aged 60 to 63. Employee contributions are made with pre-tax dollars that help to reduce plan participants’ taxable income in the years of contribution and grow tax-deferred until account owners reach retirement age. At that point, withdrawals of contributions and investment earnings are subject to tax at your marginal income tax rate, which could be lower than it was during your prime working years.
The IRS also sets an annual limit on the combined pre-tax contributions made by employees and the employer, which include employer matches and non-elective contributions. For 2025, that limit is the lesser of 100 percent of the employee’s compensation or $70,000 for employees ages 49 and younger, $77,500 for individuals 50 and older, and $81,250 for those ages 60 to 63. If the total employee and employer contributions do not add up to these limits, plan participants may make an additional post-tax contribution to their 401(k) via salary deferral if their plans allow.
Understanding After-Tax 401(k) Contributions
Unlike pre-tax 401(k) contributions that are deducted from your paycheck without accounting for income taxes, after-tax contributions are made from income that has already been taxed. This means that you pay tax on your contributions up front in return for tax-free distributions of those amounts in retirement. However, any investment earnings on those contributions are treated as pre-tax dollars and therefore subject to income tax when withdrawn in retirement.
To understand how after-tax 401(k) contributions work, consider Bob, age 45, who maxed out his 401(k) contribution for 2025 at $23,500 and received an employer match of $10,000. That amounts to $33,500 in pre-tax contributions for the year. However, the maximum allowed is $70,000. If Bob’s plan allows, he may be able to close this gap and put aside an additional $36,500 in after-tax contributions to his 401(k) in 2025. That’s a significant boost in savings.
When Bob retires, he will pay income taxes on withdrawals of his pre-tax contributions, employer matches and all the earnings on his investments. However, he will escape tax on the after-tax contributions he makes through the years, providing him with a stream of tax-free income in retirement.
After-Tax 401(k) Contributions and Roth IRAs
It is important to note that after-tax contributions to a 401(k) differ from a Roth IRA in several ways. For one, the contribution limits to a 401(k) in 2025 are approximately 10 times more than the maximum allowed for a Roth IRA ($7,000). Secondly, there are no income limitations for contributing to a 401(k). In contrast, contributions to a Roth IRA are allowed only when your modified adjusted income falls below a certain threshold ($165,000 for individuals in 2025).
Yet, Roth IRAs do allow for tax-free withdrawals of principal and investment gains in retirement, which is not the case for earnings on after-tax 401(k) contributions. With this in mind, high-income earners may consider converting their post-tax contributions to a Roth IRA right before or after they begin retirement. Taxes on earnings will be due at the time of conversion, but principal and earnings can continue to grow tax-deferred and be withdrawn in retirement tax-free.
About the Author: Olga Ismail is the head of Retirement Plan Consulting and a financial advisor with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC (PWAS). She can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Olga Ismail is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59½, may be subject to a 10 percent federal tax penalty. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. Future investment performance cannot be guaranteed. Matching contributions from an employer may be subject to a vesting schedule. Please review your retirement plan documents or consult with a financial professional for more information.
Posted on June 25, 2025