After-tax contributions

What after-tax contributions are

A 401(k) can hold three kinds of employee money: pre-tax deferrals, Roth deferrals and voluntary after-tax contributions. After-tax contributions are made from pay that has already been taxed, like Roth, but the earnings on them are taxable when withdrawn unless the money is moved into Roth first.

They sit outside the elective deferral limit. The only cap is the annual additions limit: $72,000 in 2026 for deferrals, employer contributions and after-tax contributions combined.

For 2027 the total limit rises to $75,000. (IRS Notice 2026-66)

Why it matters to employers

After-tax contributions are optional, and a plan document must specifically allow them. They are the first half of a mega backdoor Roth, which high earners often ask about.

They also come with a test. After-tax contributions are included in the actual contribution percentage (ACP) test every year, and that is true even in a safe harbor 401(k). If mostly highly compensated employees use the feature, the test can fail and some of their contributions have to be returned.

Example with 2026 figures

An engineer defers $24,500 and receives a $10,000 match. Her plan allows after-tax contributions, so she can add up to $72,000 minus $34,500, or $37,500, after tax.

Common mistakes

• Adding the feature to a safe harbor plan and assuming no testing applies.

• Letting payroll treat after-tax contributions as Roth. They are tracked and reported separately.

• Not limiting contributions in advance. A cap on after-tax contributions by highly compensated employees can prevent refunds later.

• Leaving after-tax money unconverted for years, which builds up taxable earnings.