After Tax Contributions

[Guest Patti SP]

A little guidance would be really appreciated on this topic on what I THINK I can do with a 401k and after-tax, non-Roth contributions. It is my understanding that:

1) my plan documents have to permit me to make these

2) I am over the age of 50 and, if I wanted to, I could make up to $52,000 in after tax contributions. It is my understanding that the $5,500 "catch-up" has to be done through elective deferral

3) Once in the plan (in a separately designated account), I can invest after tax contributions tax free

4) If I want to I can take out after-tax contributions and gains at any time...even before 59 1/2. without tax or penalty..in effect like a 401k loan but not the loan?

5) When I close down my business, I can do a Roth conversion of the after tax monies and move them into a Roth IRA, tax free

I am trying to understand the down side to this, but it seems like it provides nice options. Thanks to any and all for their comments.

[401king]

One big piece of the puzzle that might change your mind: After-tax contributions are subject to taxes on the gains, just like an after-tax IRA. You'd have to track the cost-basis.

[QDROphile]

And investment gains are subject to ordinary income tax rates, not capital gains rates. There is a real question about tax efficiency. You should do some modeling based on tax rates (including effect of deductions), expected returns, and time frame. The after-tax scenario is probably not that appealing. All you are getting is tax deferral on investment returns (at a rate cost) and you are giving up deductions. Ask yourself why the design is not seen or promoted.

[Jim Chad]

Wouldn't it be better to do a Roth inplan conversion immediately?