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Are employer contributions the same for pre-tax and post-tax 401(k) plan?

 

Q.  My company allows both pre-tax and after-tax employee contributions to our 401k plan.  Is the company’s 401k match identical for both plans?

My employer allows pretax and after-tax employee contributions to our 401(k) plan.  Is the company’s match identical for both plans?  I earn $100,000 and I want to contribute $6,000 at a 33.33% tax rate.  My company matches $.50 for every $1.00 that I contribute.  If I contribute $6,000 into the pretax plan, will my company match be the same as if I contributed the same amount into the after-tax plan?  What is the best approach?

  

 

A.  Typically, employer plans that offer both pre-tax (traditional) and post-tax (Roth) employee contributions also offer the same 401k match provision.  Please note, though, that the company match is always a “pre-tax” balance (since you haven’t paid income tax on it yet).   This means that if you decide to do post-tax (Roth) contributions, you’ll actually have two account balances: one post-tax (Roth) – your money, and one pre-tax – the company contribution.   When you later rollover your 401k balances, your post-tax contribution (and earnings) will roll to a Roth IRA, while the company’s pre-tax contribution (and earnings) will roll to a Traditional IRA.   Of course, you can then convert the Traditional IRA to a Roth IRA (which will require you to claim the balance as income in the year of conversion).

If your marginal tax rate under the new tax law is 33% or higher, I’d recommend the pre-tax option as the tax savings are significant.  If you find you’re in one of the lower brackets, I would recommend the Roth option instead.  Please make sure you know your actual marginal tax rate before deciding!

Good luck!

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