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Offering after tax non Roth contributions is a popular benefit for plans with upper income employees who can contribute after tax to the plan and then do the “mega backdoor Roth” by rolling the balance into either the Roth 401k (in plan Roth rollover or IRR) or out to their Roth IRA. Plans may even offer automatic IRRs which completes the rollovers to the Roth 401k immediately upon receiving the after tax contribution.

Total contributions to the plan including elective deferrals (both pre tax or Roth), company matching or profit sharing contributions, and these after tax contributions are limited to the 415(c) limit of 69k for 2024 and 70k for 2025. For those age 50+, the catch up contribution adds another 7,500.

One caveat is that these after tax contributions are subject to ACP discrimination testing which could lower the cap for those failing the ACP test. That would require the excess to be distributed back out to the employee, even if the distribution must come from the Roth account if the after tax balance had been completely rolled into the Roth. Some plans may therefore limit the amount of after tax contributions to avoid these testing failures.

After tax contributions are kept in a separate sub account in the plan, which can often be distributed in service. If distributed out to the employee, it must include the gains on the after tax contributions as well, but there is no pro rating with other portions of the pre tax balance such as elective deferrals or matching contributions. Some plans may limit these distributions to in plan rollovers, and some may allow the option to roll out to a Roth IRA. This varies by plan.

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