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If you look forward to Increase your retirement savingsa less known Functionality 401 (K) Your nest could increase considerably, according to financial advisers.
For 2025, you can Differ up to $ 23,500 In your 401 (K), plus an additional $ 7,500 in “catch -up contributions” if you are 50 years and over. This remedial contribution jump at $ 11,250 For investors aged 60 to 63.
Some plans offer Contributions after tax 401 (K) In addition to these caps. For 2025, the maximum limit 401 (K) is $ 70,000, which includes employee reports, after tax contributions, Company matchesSharing profit and other deposits.
If you can afford to do so, “it's an incredible result,” said the certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts.
“Sometimes people do not believe it is real,” he said, because you can automatically contribute, then convert the funds to “transform it into tax free income”.
However, many plans still do not offer functionality. In 2023, only 22% of employer plans offered Contributions after tax 401 (K)According to the latest data from the Vanguard How America Saves report. It is the most common in the larger plans.
Even when available, employees' participation remains low. Only 9% of investors with access operated the functionality in 2023, revealed the same Vanguard report. It was slightly down 10% in 2022.
How to start tax free growth
The after tax and Roth contributions both start with 401 (K) deposits. But there is a key difference: taxes on future growth.
Roth money increases in tax franchise, which means that future withdrawals are not subject to taxes. To compare, they are increasing, they increase, which means that your yields cause regular income taxes when withdrawn.
This is why it is important to periodically convert funds after tax to Roth, according to experts.
“The more you leave these dollars after tax in there, the more tax responsibility there will be,” said Galli. But the conversion process is “unique in each plan”.
Often, you will have to request the transfer, which could be limited to monthly or quarterly transactions, while the best plans automatically convert to Roth, he said.
Focus on regular 401 (K) reports first
Before making contributions after 401 taxes (K), you must focus on maximizing the regular pre-tax or Roth 401 reports (K) to capture your match for the employer, said CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina.
After that, allows cash flows, you can “start filling the bucket after tax”, according to your goals, he said. “In my opinion, each dollar must find a house.”
In 2023, only 14% of employees have maximized their plan 401 (K), according to the Vanguard ratio. For plans offering catch -up contributions, only 15% of employees participated.
