After tax 401k contributions

[ronocnikral]

I did a search and found this. I typed out my question there and went to post, but it wouldn't let me...

The wife and I have already maxed out our Roth IRA's for the year. In addition, my 401k is set to max out at the beginning of December, which about 80% of the contributions are Roth, the other 20% traditional. I have been doing a little research and I found out my company continues their match on the after tax money. So, if I contribute 1% on an after tax basis, they'll contribute 4%. If I contribute 2% after tax, they'll contribute 8%. 8% is my max benefit from the company. Our plan is administered by Vanguard and my employer has IMO excellent funds available to us.

So...am I missing anything? Besides taking 5 years to catch onto this, it seems I would be foolish not to max out our 401k asap and then continue contributing 2% after tax for as much of the year as possible? I understand there are accounting/tracking considerations. I guess once I reach my max I would either invest the difference in taxable accounts or pay down the mortgage more (probably a 50/50 split).

Thoughts?

 

[LOL!]

Standard advice is to contribute to the maximum of your employer match, so if that includes after-tax, then by all means do it.

You will need to do some bookkeeping to make sure your after-tax contributions are not taxed again when you begin to make withdrawals or do a rollover. (Maybe file a form 8606 with the IRS?). Some plans actually allow you to do an in-service rollover of the after-tax contributions to a Roth IRA, so this is a clever back-door way to contribute to a Roth IRA when either (a) not eligible or (b) you have already maxed out your Roth IRA contributions. If this is allowed, do the in-service rollover right away so that the gains on your after-tax contributions are tax-free in the Roth. Otherwise the gains will be taxed at ordinary income tax rates which is not good.

 

[RonBoyd]

FYI FWIW

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[travelover]

I'd also ask over at Fairmark. Moving 401(k) after tax contributions to a Roth is a grey area, still in flux over recent changes in the law.