{"id":116735,"date":"2021-06-18T13:15:30","date_gmt":"2021-06-18T13:15:30","guid":{"rendered":"https:\/\/fin2me.com\/?p=116735"},"modified":"2021-06-18T13:15:30","modified_gmt":"2021-06-18T13:15:30","slug":"big-savers-may-boost-their-retirement-stash-with-this-option","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/big-savers-may-boost-their-retirement-stash-with-this-option\/","title":{"rendered":"Big savers may boost their retirement stash with this option"},"content":{"rendered":"<ul>\n<li>Some 401(k) plans allow savings beyond the annual limit with after-tax contributions.<\/li>\n<li>Employees may save on future taxes by converting the money to Roth accounts but may owe taxes on earnings for the transfers.\u00a0<\/li>\n<li>While it can be a game-changer for certain savers, advisors say after-tax contributions aren&#x27;t widely available.<\/li>\n<\/ul>\n<p>Many people know about their 401(k) perks, but their plan may have a hidden feature that allows for even more savings.<\/p>\n<p>When someone maxes out their 401(k) \u2014 $19,500 in annual contributions for those under 50 in 2021 \u2014 some plans may permit them to stash more money into their account.<\/p>\n<p>After-tax 401(k) contributions may let someone actually save up to $58,000 in 2021, including employer matches, profit sharing and other plan deposits.<\/p>\n<p>Later, investors may use a so-called mega-backdoor Roth maneuver, paying levies on after-tax earnings, to move the money into a Roth individual retirement account.<\/p>\n<p>&quot;It can be a really really powerful technique for the right individual,&quot; said certified financial planner Dan Galli, owner at Dan J. Galli &amp; Associates in Norwell, Massachusetts.<\/p>\n<p><strong>More from Personal Finance:<\/strong><br \/>Most workers wait years for a company\u2019s 401(k) match to become their money<br \/>Here are some money moves to make while the Fed keeps rates near zero<br \/>Social Security cost-of-living adjustment for 2022 could be higher based on rising consumer prices<\/p>\n<p>By rolling the money into a Roth IRA, investors may start building a tax-free pot of money for retirement, without rules to take the money out at a certain age.<\/p>\n<p>&quot;If they&#x27;re young enough and have years of tax-free growth ahead of them, it could be a game-changer,&quot; said JoAnn May, a CFP and CPA\u00a0with Forest Asset Management in Berwyn, Illinois.<\/p>\n<h2>After-tax vs. Roth 401(k) contributions<\/h2>\n<p>It&#x27;s easy to confuse after-tax 401(k) contributions with a Roth 401(k) account since both allow employees to save money after taxes, but there are significant differences.<\/p>\n<p>For example, employees under age 50 may defer up to $19,500 of their salary into their company&#x27;s regular pre-tax or Roth (after-tax) 401(k) account.<\/p>\n<p>However, you can make additional after-tax contributions to your traditional 401(k), which allows you to save more than the $19,500 cap.<\/p>\n<p>For example, if someone defers $19,500 and their employer deposits $8,000 for matches and profit-sharing, they may save another $30,500 before hitting the $58,000 plan limit.<\/p>\n<p>The other twist is how earnings are taxed. While Roth 401(k) withdrawals (including earnings growth) are tax-free in retirement, any earnings on those &quot;bonus&quot; amounts are taxed. Yes, it&#x27;s confusing.<\/p>\n<p>&quot;That&#x27;s why it&#x27;s important to get [after-tax contributions] out of the 401(k) plan periodically,&quot; said May.<\/p>\n<p>Once per year, her clients withdraw after-tax contributions and earnings and roll the money into a pre-tax or Roth IRA. The downside of the Roth IRA option is there may be a tax bill on growth at the conversion.<\/p>\n<p>Keep in mind the feature isn&#x27;t available for all plans.<\/p>\n<p>While many 401(k) offer Roth accounts, after-tax contributions are less common. Fewer than 20% of 401(k) plans provided after-tax contributions in 2019, Vanguard reported.\u00a0<\/p>\n<p>Moreover, plans with after-tax 401(k) contributions may not educate employees about the option. In some cases, advisors may discover the feature buried deep within a client&#x27;s benefits paperwork.<\/p>\n<p>&quot;The most important thing is to read your employee benefits handbook and pass it on to your advisor,&quot; said May.<\/p>\n<h2>Taxable income in retirement<\/h2>\n<p>Whether someone leverages after-tax or Roth contributions, tax-free money may be valuable in retirement, said Galli.<\/p>\n<p>When clients apply for Social Security, their portfolio income may hurt those benefits. Retirees may pay income taxes on up to 50% to 85% of their Social Security payments, depending on their modified adjusted gross income.<\/p>\n<p>About 40% of those who receive Social Security income pay taxes on their benefits, according to the Social Security Administration.<\/p>\n<p>Some retirees may also pay more for Medicare premiums. While most retirees don&#x27;t pay for Medicare Part A, the base price for Medicare Part B starts at $148.50 for 2021.<\/p>\n<p>Depending on their income, retirees may have to pay more for Medicare Part B, with top earners paying monthly premiums of $504.90.<\/p>\n<p>Source: <a href=\"https:\/\/www.cnbc.com\/2021\/06\/18\/big-savers-may-boost-their-retirement-stash-with-this-option.html\" target=\"_blank\" rel=\"noopener\">Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Some 401(k) plans allow savings beyond the annual limit with after-tax contributions. Employees may save on future taxes by converting the money to Roth accounts [&#8230;]<\/p>\n","protected":false},"author":3,"featured_media":116734,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Big savers may boost their retirement stash with this option - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/business\/big-savers-may-boost-their-retirement-stash-with-this-option\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Big savers may boost their retirement stash with this option - Fin2me\" \/>\n<meta property=\"og:description\" content=\"Some 401(k) plans allow savings beyond the annual limit with after-tax contributions. 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