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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: dave__ on April 22, 2016, 09:23:13 AM

Title: Contributing post-tax to 401k
Post by: dave__ on April 22, 2016, 09:23:13 AM
The plan offers up to 10% of post-tax salary to be added to your 401k. How is this any different from investing in a taxable account? I've already paid taxes on the income and then I would need to pay taxes again when pulling it out. Am I missing something? The only thing I can think of is sheltering the money in a retirement account (various benefits with this). Or if the backdoor Roth is an option - which I don't think works in this case as there is money in an traditional IRA account already.

Thanks!
Title: Re: Contributing post-tax to 401k
Post by: seattlecyclone on April 22, 2016, 09:32:53 AM
You're right that these contributions often don't make much sense on their own. However it is the first step in the "Mega Backdoor Roth" which you can read more about by searching. Ask if you have any questions about it.
Title: Re: Contributing post-tax to 401k
Post by: MrMoogle on April 22, 2016, 09:49:25 AM
Are you talking Roth, or the non-deductible traditional?

For non-deductible traditional, there's the mega backdoor Roth option, although rumors were it was going away.  Also, you wouldn't pay taxes on contributions that are withdrawn, but would pay income rates on any interest (when you withdraw it).  So if you don't pull out the interest until you retire, it's all basically tax free, since your income will drop into the standard deduction + personal exemption area.