| The phrase "after tax contributions" as it pertains | | | | On the other hand, if your money was in an after |
| to retirement accounts can often be a bit | | | | tax contributions account, you can take that |
| confusing. This article will discuss some of the | | | | money out and since the taxes have already |
| common aspects of after tax contributions. | | | | been paid on it, you face a much lower tax |
| You might find it easier to understand the phrase | | | | burden. You may have to pay some tax on the |
| if you think of after tax contributions as being | | | | interest that has accrued, but that is all. Any |
| voluntary contributions. These are contributions | | | | money that you remove from an after tax |
| that you deposit into a retirement account or | | | | account will come to you in full, just as if you |
| annuity after you have paid the required state | | | | were taking it out of a savings account. |
| and federal taxes on it. | | | | As you can see, the differences between these |
| Conversely, before tax contributions are those | | | | two plans can be dramatic, so it is important to |
| funds that you put into an account that have not | | | | get the right plan for your needs. One way to |
| been subject to taxes. When this money is | | | | make the best decision is to speak with a financial |
| withdrawn later on you will have to pay that tax | | | | planner who can go through the various scenarios |
| at that time. | | | | with you and help you decide which type of |
| Generally speaking, most people prefer after tax | | | | contribution program will benefit you the most. |
| contributions because when they withdraw the | | | | You can also speak with the HR people at your |
| money they will not be taxed again. There is | | | | work. They may be able to give you further |
| some belief (and perhaps rightly) that taxes only | | | | insight into which plan is best for a person in your |
| go up as time passes by, and that if they wait to | | | | circumstance. They may also tell you that you |
| pay the tax on their contributions later the tax will | | | | have no choice but to use the program that they |
| be higher. | | | | have set up. Even if you find yourself using a plan |
| Another important issue between the two is that | | | | that you would rather not have, it is best to |
| if you take money out of a before tax account | | | | know how the programs can affect you should |
| that amount of money will be added to your | | | | you ever need to take money out of your |
| stated annual income for that year. In other | | | | account, especially if you have to withdraw that |
| words, if you make a salary of $40,000 and you | | | | money before retirement age. Learning more |
| take out $20,000 of before tax contributions your | | | | about after tax contributions can only help you |
| income tax for this year will be for the full | | | | later on when you need to use the money that |
| $60,000, which can place a heavy burden on you | | | | was put into the account. |
| when tax time comes around. | | | | |