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You fund these 401(k)s with after-tax dollars, so you pay taxes on your contributions this year. But this lets you withdraw the money tax-free in retirement, as long as you're at least 59 1/2 ...
How an after-tax 401(k) works. An after-tax 401(k) allows savers to put after-tax money into a 401(k) account, and that money can grow on a tax-deferred basis until retirement. When it comes time ...
Any 401(k) withdrawal that occurs before age 59 1/2, however, may be subject to an additional tax and a 10 percent penalty. Roth 401(k): Contributions are made with after-tax dollars, meaning you ...
The first implementation of the 401(k) plan was in 1978, about three weeks after Section 401(k) was enacted, before the Revenue Act of 1978 even went into effect. Ethan Lipsig, of the outside law firm for Hughes Aircraft Company, sent a letter to Hughes Aircraft outlining how it could convert its after-tax savings plan into a 401(k) plan. [6]
In a 401(k) plan, the contributions are funded by the employee and are often matched by contributions from the employer and are made before taxes [6] (or in the case of Roth deferrals, after taxes). These funds grow tax-free until the employee can withdraw them.
Cashing out your 401(k) plan before age 59 ½ means the withdrawal will typically be subject to a 10 percent IRS penalty, on top of the income tax owed on the distribution.
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