Are 401(k) Contributions Pre-Tax or After-Tax?

While many assume 401(k) contributions are solely made with pre-tax dollars to reduce taxable income, it is also possible to contribute using after-tax money. These after-tax options are distinct from both traditional pre-tax and Roth 401(k) contributions and have different tax implications at the time of contribution and during withdrawal. Understanding these distinctions is important for retirement savings planning.

Understanding 401(k) Contribution Types

The most common type is the traditional, pre-tax contribution. When you make pre-tax contributions, the funds are deducted from your paycheck before income taxes are calculated, lowering your current taxable income. These funds and their investment earnings grow tax-deferred and are taxed as ordinary income upon withdrawal.

Another option is the Roth 401(k) contribution. Unlike traditional contributions, Roth contributions are made with after-tax dollars, so you pay income tax on the money in the year you earn it. The benefit is that contributions and their earnings can be withdrawn tax-free during retirement, provided you meet conditions like the five-year rule and reaching age 59½.

The third, less common type is the non-Roth after-tax contribution. These are also made with money that has already been taxed, but their tax treatment upon withdrawal is different. While your original contributions can be withdrawn tax-free, the investment earnings grow tax-deferred and are taxed as ordinary income upon distribution.

Contribution Limits and Plan Rules

The Internal Revenue Service (IRS) sets annual limits on 401(k) contributions. The employee elective deferral limit applies to the combined total of traditional and Roth 401(k) contributions. For 2025, this limit is $23,500, with an additional catch-up contribution of $7,500 for those age 50 and over; a higher limit of $11,250 applies to individuals aged 60 to 63.

A separate, higher limit governs total annual additions to a 401(k), including all employee and employer contributions. For 2025, this total limit is $70,000. The difference between your elective deferrals plus employer contributions and this overall cap is the space where non-Roth after-tax contributions can be made. For example, if you contribute $23,500 and your employer adds $10,000, you could contribute an additional $36,500 in non-Roth after-tax dollars.

The option to make non-Roth after-tax contributions is not guaranteed and depends on your employer’s 401(k) plan rules, as many plans do not permit it. To determine if this option is available, review your plan documents or contact the plan administrator.

Taxation of Withdrawals and Rollovers

The taxation of 401(k) funds upon withdrawal depends on the contribution type. When taking a distribution from a 401(k) with mixed pre-tax and non-Roth after-tax funds, the IRS applies a pro-rata rule. This rule means each withdrawal contains a proportional mix of tax-free principal (your after-tax contributions) and taxable earnings, so a portion of every distribution is taxed.

A strategy for managing these funds is rolling them into Individual Retirement Accounts (IRAs), a technique called the “mega backdoor Roth.” IRS guidance allows you to separate the funds during a rollover, directing the different components to different accounts to optimize the tax outcome.

This strategy is a two-part rollover. First, the non-Roth after-tax contributions can be rolled directly into a Roth IRA tax-free. Second, the pre-tax earnings from those contributions can be rolled into a Traditional IRA. This move preserves their tax-deferred status, and you will pay income tax on that money when you withdraw it from the Traditional IRA.

Reporting After-Tax Contributions

Tracking and reporting after-tax contributions is a shared responsibility between you and the plan administrator. The administrator must maintain records that distinguish your after-tax contributions, which form your cost basis, from pre-tax funds and investment earnings. This accounting ensures correct tax treatment during a distribution or rollover.

When you receive a distribution, the plan administrator issues IRS Form 1099-R. This form provides a breakdown of the funds you received. Box 1 shows the total gross distribution, while Box 2a indicates the taxable portion.

Box 5 is key for identifying your after-tax money, as it reports the amount of your employee contributions recovered tax-free. For non-Roth after-tax funds, this box shows the principal portion of your distribution that is not subject to income tax. Reviewing these boxes helps determine the taxable and non-taxable components of your withdrawal.