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Steve DeCesare Shares Insight on New IRS Ruling with “After-tax 401(k) rollover to Roth IRA OK’d”

Millions of employees have had the option to make after-tax contributions to their traditional 401(k) plans for many years — long before the Roth 401(k) came on the scene. Now, a recent IRS ruling makes it easier to do an after-tax 401(k) rollover to a Roth IRA.

The ruling potentially will benefit many workers, especially those whose incomes make them ineligible to contribute to a Roth IRA annually.

401(k) contribution rules

On a pretax basis, employees can’t contribute above certain limits. In 2015, for instance, the limit is $18,000; those 50 and older can make additional catch-up contributions of $6,000. This money is not counted toward income, and all gains are tax-deferred. The limits are the same for Roth 401(k)s, though the contributions do count toward income and all gains are tax-free.

But employees can sock away a lot more retirement cash if their company plan offers an after-tax option in a traditional 401(k). For instance, the IRS established a limit of $53,000 for individuals in 2015.

Thanks to the recent IRS ruling, employees now can more easily roll over after-tax contributions into a Roth IRA when they retire, or after leaving their company. Click here to read more.