After-Tax Retirement Contribution Limits

You have the option of investing in both pretax and after-tax retirement plans as you prepare for your golden years. Both plan types have advantages and disadvantages. No matter which type of plan you choose -- or both -- the Internal Revenue Service limits how much money you can stash away annually.

After-Tax Plans

The Roth individual retirement account and Roth 401(k) are the two types of retirement plans designed to hold after-tax contributions. The Roth IRA was established as part of the Taxpayer Relief Act of 1997 and is named after Delaware’s Sen. William Roth, the chief sponsor of the plan. Roth IRAs possess tax treatment opposite of their traditional IRA predecessors. Traditional IRA plans allow investors to contribute to their retirement savings pretax, take a tax deduction for their annual contribution -- if qualified -- and pay taxes on the money once they withdraw it at retirement. Roth IRA plans allow investors to pay taxes on their IRA contributions at the time of deposit, then receive the qualified distributions tax-free at retirement. Roth 401(k) plans were introduced in January 2006. Their differences with traditional 401(k)s mirror the differences between Roth and traditional IRAs.

After-Tax Plan Requirements

If your employer offers a Roth 401(k) plan, you’re qualified to contribute after-tax dollars to it within annual limits of the Internal Revenue Service. If you have earned income, you are qualified to open and contribute to a Roth IRA, provided you meet the annual modified adjusted gross income limitations set by the IRS. A Roth 401(k) might be the only after-tax plan that people with high income can contribute to, because these employer-sponsored plans are not bound by IRS restrictions on modified adjusted gross income.

Roth IRA Income Restrictions

Your Roth IRA income restriction depends on your filing status. If you make too much money, you won’t be able to contribute to a Roth IRA at all; if your income falls within a set range, your contributions will be limited. For tax year 2013: • People who are married and filing jointly, and qualifying widows or widowers, may contribute to Roth IRAs provided they do not make $188,000 or more. Full contributions are allowed if your modified adjusted gross income is up to $178,000. Contributions are limited if income is between $178,001 and $187,999. • Taxpayers filing as single, head of household, or married filing separately living separately from their spouse are phased out at $127,000 or more. Those earning up to $112,000 can make the full contribution. Contributions are limited if income is between $112,001 and 126,000. • Married filing separately taxpayers who lived with their spouses during tax year 2013 cannot contribute to their Roth IRA if their modified adjusted gross income is $10,000 or more.

Roth IRA Contribution Limits

If you’ve met the modified adjusted gross income requirements for a Roth IRA, you may contribute $5,500 to your retirement plan if you're younger than 50. Taxpayers 50 and older are entitled to contribute an additional “catch-up” contribution of $1,000, for a total annual contribution of $6,500 during tax year 2013. If your modified adjusted gross income for the year is not as much as the annual contribution limits, you may contribute only up to the amount of taxable income you’ve earned. In other words, if you make only $2,500 in 2013, you can contribute only $2,500 to your Roth IRA.

Roth 401(k) Contribution Limits

If you are participating in an employer-sponsored Roth 401(k) plan, your 2013 contribution limits are much higher, but they cannot be combined with any other 401(k) plan you have. You may contribute up to $17,000 to your Roth 401(k) in tax year 2013 if you are younger than 50. If you turn 50 in 2013, or if you're already 50 or older, your annual contribution limit is $23,000.

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