Here’s some great savings news for you and your employees!! While your contribution maxes out at $18,000 ($24,000 for those over 50), you can supplement it with after tax contributions. When combined with the company match, the total contribution hits the federal limit of $53,000. For instance, your salary deferral is $18,000 and the company match is another $7,000, so you can make another $28,000 after tax contribution to max out at $53,000.
Regular 401(k) Contribution (Pretax or Roth): $18,000
Company Match (Pretax only): $7,000
After Tax 401(k) Contribution: $28,000*
(Max Limit for Defined Contribution in 2016)
How does the After-Tax Contributions differ from Roth?
Although they are both after tax contributions, earnings from the after tax 401(k) contributions are only tax deferred. At distribution, the earnings are subject to ordinary income tax. As for Roth contributions, the earnings are both tax deferred and tax free at distribution.
In-Plan Roth Conversions
If your plan allows for In-Plan Roth conversions, what you can do is in year two pay the taxes on gains and convert your contributions to Roth. Now your assets are completely tax free at distribution!
This works like a back-door Roth, but with much bigger limits. Super-savers, take heed!