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I ws just thinking about something that I wanted to post to get some input. I can remember on my first job, while being very Foolish, I was invested in my company's 401K program.

To make a long story short. I swear that we were able to contribute up to 16% of our income, not to exceed $10,000. I also remember that we could make taxable contributions in addition to the non-taxable ones. Even if we were not at the $10,000 limit. Does this make any sense?

Again, I was most uninformed financially at the time, and really don't remeber a lot of the details now. Anyone with some thoughts?
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Actually, "taxable" and "non-taxable" are not quite correct. Rather, I think you mean "pre-tax contributions" and "post-tax contributions" also known as "elective deferrals" and "elective contributions" respectively.

In any event, yes, some plans still permit the contribution of both pre-tax (the usual) and post-tax contributions in a 401(k) plan. However, the post-tax contributions have fallen out of favor for two reasons:

1. The ADP/ACP tests are much harder to pass when allowing these post-tax contributions.

2. The advent of the ROTH IRA virtually supplants the need/want/desire to do post-tax contributions for almost all people.

Now, when you eventually cash-out your old 401(k) assets, the entire account balance minus the post-tax contributions is "rollable" into a Rollover IRA or potentially a new 401(k) plan at a new employer. The post-tax contributions themselves are not rollable and are returned to you in cash as a non-taxable transaction.

TheBadger
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Thank you for that response. I thought I was going crazy.
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Now, when you eventually cash-out your old 401(k) assets, the entire account balance minus the post-tax contributions is "rollable" into a Rollover IRA or potentially a new 401(k) plan at a new employer. The post-tax contributions themselves are not rollable and are returned to you in cash as a non-taxable transaction.
TheBadger

BADGER, does this mean that the interest earned on the post-tax contributions does not have to be distributed to me but rather it can be rolled over into the new tax deffered accounted??

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Now, when you eventually cash-out your old 401(k) assets, the entire account balance minus the post-tax contributions is "rollable" into a Rollover IRA or potentially a new 401(k) plan at a new employer. The post-tax contributions themselves are not rollable and are returned to you in cash as a non-taxable transaction.
TheBadger

BADGER, does this mean that the interest earned on the post-tax contributions does not have to be distributed to me but rather it can be rolled over into the new tax defered accounted??

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>> Now, when you eventually cash-out your old 401(k) assets, the entire
>> account balance minus the post-tax contributions is "rollable" into
>> a Rollover IRA or potentially a new 401(k) plan at a new employer. The
>> post-tax contributions themselves are not rollable and are returned to
>> you in cash as a non-taxable transaction.
>> TheBadger

> BADGER, does this mean that the interest earned on the post-tax
> contributions does not have to be distributed to me but rather
> it can be rolled over into the new tax defered accounted??


I can answer this one -- I did such a conversion just about a year ago.

I received a check representing all my post-tax contributions.

Another check went to the company where I opened my new IRA -- representing all my pre-tax contributions, matching contributions made by my company, all the accumulated earnings on those contributions and the accumulated earnings on my post-tax contributions.

So the answer to your question is "yes," except I wouldn't apply the word "interest" to the earnings. Those earnings essentially had to be included in the amount transferred into the IRA -- if not, I would have owed income tax and a 10% penalty. Guess you knew that...

Phooley
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I can answer this one -- I did such a conversion just about a year ago.

I received a check representing all my post-tax contributions.

Another check went to the company where I opened my new IRA -- representing all my pre-tax contributions, matching contributions made by my company, all the accumulated earnings on those contributions and the accumulated earnings on my post-tax contributions.

So the answer to your question is "yes," except I wouldn't apply the word "interest" to the earnings.

Phooley, Thank you. That is what I thought and it nice to have it confirmed. Yes, you are correct. I should not have used "interest", earnings is better.
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Absolutely; in fact earnings on after-tax monies will not be distributed to you unless you request it as it is a taxable event; whereas the return of after-tax contributions is a non-taxable event.

TheBadger
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