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No. of Recommendations: 6
The post-tax contributions have already been taxed. Once I leave the company, those post-tax funds could be rolled into a non-deductible traditional IRA then converted to a Roth IRA and I'd only pay taxes on the gains, not the contributions. Therefore, I've managed to use more tax-advantaged Roth IRA space than I could otherwise (due to the annual $5000 cap on contributions).

Keep in mind that there is no Roth-like benefit here until you retire and actually transfer the money around into a Roth IRA.

The earnings on post-tax contributions to a 401k are still taxable as ordinary income when withdrawn, just like all other earnings in the account and just like the pre-tax contributions. So all you'd be doing is earmarking some money that in the future could be added to your Roth IRA and only then begin generating tax free income.

Personally, I'd prefer an ordinary after-tax investment account.
-Dividends and long-term capital gains get taxed at a lower rate than ordinary income. Well, they do for now - it's anybody's guess what those will be in a decade, although there is a very long history of giving some preferential treatment to long-term capital gains.
-There are no restrictions on withdrawal - you can take what you want when you want. However if you have to sell some investment to get the cash, you'll have some tax consequences. But you can manage that to your benefit. You can choose to sell a winner and pay some tax. You can sell something that's at breakeven and have no tax. Or you can sell something that's at a loss and get a reduction in your taxes. You can sell multiple assets - some winners and some losers - to get the desired tax treatment. That's a lot of flexibility.

--Peter
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