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URL:  https://boards.fool.com/i-didnt-know-that-you-could-contribute-to-a-401k-12016689.aspx

Subject:  Re: A quick question..... Date:  2/20/2000  8:29 AM
Author:  mathetes Number:  19310 of 98799

I didn't know that you could contribute to a 401k after taxes. At least I didn't have that option. But if that plan is available to you, I can only say that it depends on your situation or more likely what you plan your future situation to be. Withdrawals from a 401k normally happen after age 59.5, at some future point when hopefully you are taxed at a lower rate.

Many large corporations had savings plans in place, as a benefit, before the advent of the 401(k) legislation that now has "given its name" to so many plans. Those older plans were after tax plans. When the 401(k) provisions permitted pre-tax contributions to be made, the older, after tax plans became one choice in the new improved savings plans.

The advantages of the after tax version is that one can still receive a corporate matching contribution (where it's offered) and it is far easier to make withdrawals, because they're not subject to the penalties associated with pre-tax plans. Corporations, again, usually restrict the number of times you can withdraw, but that's just to keep people from treating it as they might a bank savings account. And, obviously, you've already paid the taxes on the contributed amount, so owe taxes only on any increase in value that might have been received........

It still is generally more prudent to make contributions to the pre-tax plan; however, that presumes that one can afford to set aside more or less permanently that portion of one's income. That is a burden to many.....

mathetes
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