after tax 401(k) not the same benifits as a Roth, correct?

[maynard]

My company offers the option of contributing to my 401(k) after tax, (as well as the traditional pre-tax option of course).

But this type of contribution is not the same as a Roth IRA, correct? And does not offer the same tax benifits as a Roth, correct?

This article seems to sum it up somewhat well.....

Are After Tax 401(k) Contributions a Good Idea? - 2million Personal Finance Blog, My Journey to Financial Freedom

But the second paragraph says.......

"However, the reason after tax contributions to a 401(k) aren't ideal is that any proceeds withdrawn at retirement are taxed at ordinary income rates. This means that your profits could be taxed at regular income tax rates instead of the currently lower capital gains income tax rates."


Does "could" mean will be taxed at the regualr tax rates? Would that depend on the current laws or does that depend on the company 401(k) policy? Is a after tax 401(k) ever a good idea for anyone?

thanks in advance!

[Petunia 100]

Maynard, re-read the first paragraph of the article. It says:

These after-tax contributions are not part of a Roth 401(k) feature, nor do they count towards the IRS 401(k) pre-tax contribution limit ($15,000 in 2006).

So it isn't talking about Roth 401k, but after-tax contributions. The two aren't the same thing. Before there was any such thing as a Roth 401k, some plans would allow you to contribute more than the limit, but you could not defer tax on those contributions.

Roth 401ks do offer most of the same tax benefits of a Roth IRA, the primary difference is that you cannot withdraw contributions at any time tax-free from a Roth 401k the way you can with a Roth IRA.