After-Tax vs. Roth: Which is Better?

Shawn Plummer

CEO, The Annuity Expert

After-Tax vs. Roth Contribution Type

  • Roth IRA: Employee elective contributions are made with after-tax dollars.
  • Roth 401k: Contributions are made with after-tax dollars.
  • After-Tax: Contributions are made with after-tax dollars.

After-Tax vs. Roth Contribution Limits

  • Roth IRA: The annual contribution limit is $7,500 in 2024. Employees over age 50 can contribute an additional $1,000.
  • Roth 401k: The annual contribution limit is $23,000 in 2024. Employees over age 50 can contribute an additional $7,500.
  • After-Tax: No contribution limits.
Roth 401K Vs After Tax 401K

After-Tax vs. Roth Income Limits

  • Roth IRA: Individuals can not earn more than $161,000. Married couples can not earn more than $240,000.
  • Roth 401k: No income limits.
  • After-Tax: No income limits.

After-Tax vs. Roth Taxation

  • Roth IRA: Withdrawals are tax-free if IRS requirements are met.
  • Roth 401k: Withdrawals are tax-free if IRS requirements are met.
  • After-Tax: All the investment gains are taxed as ordinary income.
After Tax Vs Roth

Required Minimum Distributions (RMD)

  • Roth IRA: No RMDs.
  • Roth 401k: RMDs are required starting at age 73.
  • After-Tax: No RMDs.

What is a Roth IRA?

A Roth IRA is a type of IRA account that saves money for your retirement. Contributions made to a Roth IRA are funded with money already taxed. However, you won’t have to pay taxes on the money you withdraw from the Roth IRA if you meet a few IRS conditions.

What is a Roth 401k?

A Roth 401k is a type of 401k retirement plan. Contributions to a Roth 401k are funded with money already taxed. Future withdrawals during retirement are tax-free.

Related Reading: 401k vs. Roth 401k: What’s the Difference? What is an After-Tax Retirement Plan?

Also known as a non-qualified retirement plan, contributions are made and funded with money already taxed. All the investment gains earned before and during retirement are taxed as ordinary income. Annuities and permanent life insurance are considered after-tax retirement plans.

After Tax 401K Vs Roth 401K

How to spend a 401k plan efficiently in retirement

Employees can’t touch their 401k plans without a tax penalty until they’ve reached the age of 59½ years. At that time, a 401k plan owner can roll over their retirement savings plans into a deferred IRA annuity with a lifetime income rider without tax consequences. The annuity will then equally distribute (now or in the future) a percentage of the retirement account for the rest of the retiree’s or married retirees’ lifetimes, even after the account has run out of money.

How to spend a Roth IRA efficiently in retirement

Once the Roth IRA requirements are met, an owner can transfer their account into a Roth annuity with a lifetime income rider. The annuity will then distribute a tax-free income for the rest of the retiree’s or married retirees’ lifetimes, even after the Roth IRA has run out of money.

Younger investors can contribute to a new Roth IRA annuity or convert their traditional IRAs into a Roth IRA annuity and guarantee their future tax-free income during retirement.

How to spend an After-Tax plan efficiently in retirement

Account owners can’t touch their after-tax retirement plans without a tax penalty until they’ve reached the age of 59½ years (in most cases). At that time, a plan owner can transfer (1035 Exchange) over their retirement savings plans into a deferred IRA annuity with a lifetime income rider without tax consequences. The annuity will then equally distribute (now or in the future) a percentage of the retirement account for the rest of the retiree’s or married retirees’ lifetimes, even after the account has run out of money. Only earned gains will be taxed as ordinary income.

Roth Vs After Tax

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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