Can I make both pre- and post-tax contributions to a 401(k)?December 11, 2012: 6:32 AM ET
Can I invest both pre- and post-tax dollars in the same 401(k)? If so, how do I know what taxes I owe at withdrawal? — Kathy B.
Whether or not you can invest both pre-tax and after-tax dollars in the same 401(k) depends on the plan itself. It's a safe bet that your employer's 401(k) plan permits pre-tax contributions, according to Kaye Thomas, who spent two decades as a tax lawyer and now writes about taxation and investments on his website http://www.fairmark.com. Many, but not all, also allow after-tax contributions, he says. So if you're interested in making after-tax contributions to your 401(k), ask your plan representative whether the plan allows them.
Federal regulations require 401(k)s to keep track of any after-tax contributions. When you withdraw money from the account, your employer will provide you and the IRS with copies of Form 1099-R, which spells out which part of the distribution is taxable. You'll owe income tax on pre-tax contributions and investment earnings, but not on after-tax contributions.
— Austin Kilham
Got a question for the Help Desk? Send it to firstname.lastname@example.org.