A specific strategy enables high-income earners at one major corporation to substantially increase their retirement savings beyond the typical limits of 401(k) and Roth IRA contributions. This approach involves making after-tax contributions to a 401(k) plan and then converting those contributions, along with any earnings, to a Roth IRA. This conversion is generally a non-taxable event to the extent the after-tax contributions have already been taxed.
The utilization of this method offers significant advantages, particularly for individuals seeking to maximize tax-advantaged retirement savings. It allows accumulation of potentially tax-free growth within the Roth IRA, providing flexibility and potential tax benefits during retirement. This strategy has gained prominence as a valuable tool for employees at certain large companies that permit after-tax 401(k) contributions and in-service distributions or conversions.
