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Traditional after-tax contributions offer an alternative to the pre-tax and Roth after-tax contributions already available in the Adobe 401(k) Plan and allow you to contribute above the IRS contribution limit for pre-tax and Roth contributions. In addition, traditional after-tax money can be converted to Roth (see Roth In-Plan Conversions to learn more about this option).
Note: You can elect to have your contributions automatically transfer to after-tax contributions once you reach the IRS contribution limit for pre-tax and Roth contributions.
Note: Traditional after-tax contributions are not eligible for company matching contributions.
The difference among pre-tax, Roth and traditional after-tax contributions is how they are taxed, both today and in retirement.
| Provision | Pre-tax contributions | Roth after-tax contributions | Traditional after-tax contributions |
| Contributions | Pre-tax dollars. | After-tax dollars. | After-tax dollars. |
| Contributions subject to tax at distribution* | Yes. | No. | No. |
| Earnings subject to tax at distribution* | Yes. | No, if you meet certain requirements. | Yes. |
| Tax penalty on distributions before age 59½* | 10 percent federal penalty tax on contributions and earnings. | 10 percent federal penalty tax on earnings, but not contributions. | 10 percent federal penalty tax on earnings, but not contributions. |
| Maximum annual contributions | Subject to annual IRS personal contribution limits. Also subject to the annual IRS total defined contribution plan limit. |
Subject to annual IRS personal contribution limits. Also subject to the annual IRS total defined contribution plan limit. |
Not subject to annual IRS personal contribution limits. However, contributions are subject to the annual IRS total defined contribution plan limit. |
You can contribute 1 percent to 65 percent of your pay on a pre-tax, Roth or traditional after-tax basis (or a combination of the three).
The IRS also limits contributions. For 2024, the IRS will limit your pre-tax and Roth after-tax contributions to $23,000 ($30,500 if you are age 50 or older). In addition, the IRS also limits the sum of all contributions (including your pre-tax, Roth and traditional after-tax contributions, as well as employer matching contributions) to $69,000 ($76,500 if you are age 50 or older). For more information, visit vanguard.com/contributionlimits.
| Pre-tax and/or Roth contributions (402(g) limit) | $23,000 |
| Adobe company maximum match* | $10,350 |
| Traditional after-tax contributions | $35,650 |
| IRS maximum contribution limit total (415 limit) | $69,000 |
*Based on IRS-eligible annual compensation maximum.
Note: Highly compensated employees will not be subject to additional limits on traditional after-tax contributions. However, if the Plan does not pass its annual testing, highly compensated employees may get a refund of some of the money they contributed to the Plan that year.
Have you considered making Roth after-tax contributions to your Plan account? They can be beneficial because you pay taxes up front. You will not have to pay taxes on your contributions or on any of their earnings when you take the money out, as long as you have met the requirements.*
But how do you know if Roth is right for you? Consider these guidelines:
Who Might Benefit From Roth Contributions?
If you are financially well-prepared for retirement, Roth contributions can make sense. Strong savers and those with generous retirement benefits may face some pretty big tax obligations in retirement. Having tax-exempt savings could lessen the burden.
You might benefit by making Roth contributions if:
Who Might Not Benefit From Roth Contributions?
You might not benefit from Roth contributions if you expect Social Security to be your main source of retirement income. In that case, your income—and tax rate—may drop in retirement.
You may also not benefit if:
Ready to Make Roth Contributions?
Log in to your account at vanguard.com/retirementplans.
*Withdrawals of Roth 401(k) money are tax free if you are over age 59½ and made your first Roth contribution at least five years ago. If you withdraw Roth 401(k) money from your account before age 59½ or less than five years from the first contribution, the portion of the withdrawal that is attributable to earnings will be subject to ordinary income tax and a 10 percent federal penalty tax.
Whenever you invest, there’s a chance you could lose the money.
© 2024. Adobe and the Adobe logo are either registered trademarks or trademarks of Adobe in the United States and/or other countries.
The Roth in-plan conversion feature will allow you to convert all or a portion of your pre-tax and/or traditional after-tax savings to Roth money within the 401(k) Plan. You can also elect to have these conversions happen automatically.
The Advantages—and Costs—of a Roth Conversion
Roth money, including any earnings, can be withdrawn tax free if you are age 59½ or older and the Roth account has been established for at least five years.*
Tax-free withdrawals could be a significant benefit in retirement. However, any potential future tax benefit must be weighed against the cost of a conversion today. You would owe ordinary income taxes on pre-tax money converted to Roth in the tax year of the conversion. In general, if you convert after-tax money to Roth, you would owe taxes on the portion of the conversion that represents earnings on that after-tax money. These taxes would need to be paid with money from outside the Plan when you file your income taxes for the year in which the conversion was made. One way to reduce the amount of taxes you owe when converting traditional after-tax money to Roth is to complete a conversion after every paycheck instead of waiting until the end of the year.
Consult a Tax Advisor Before Acting
Converting to Roth is not right for everyone. It depends greatly on your circumstances, including your current and estimated future tax rates. We recommend that you consult a tax advisor before taking any action.
| Question | Answer |
| How much tax will you owe on the conversion? | The tax on a conversion could be significant. You or your tax advisor should determine whether the amount you convert to Roth would raise your taxable income enough to push you into a higher income tax bracket or cause other adverse tax consequences. |
| Do you have money outside the Plan to pay the tax? | If you have not experienced a distributable event (such as termination from employment or the availability of an in-service withdrawal) and therefore do not have access to savings within the Plan, you will have to pay any taxes due on the converted amount with money from outside the Plan. If you do have access to your Plan savings and are planning to pay any conversion tax with money from your Plan account, you will owe regular income taxes and, if you are younger than age 59½, an additional 10 percent federal penalty tax on the money you withdraw. |
| Can you wait five years before taking Roth withdrawals? | In general, converted amounts withdrawn within five years of the conversion are subject to a 10 percent federal penalty tax. A separate five-year holding period applies to each conversion. |
If you decide to elect a Roth in-plan conversion, you can do so by calling Vanguard Participant Services at (800) 523-1188. Associates are available Monday – Friday from 5:30am – 6:00pm PT.
You can elect to convert a specific dollar amount or a percentage of your account to Roth.
Whenever you invest, there's a chance you could lose the money.
*Taxes: Taking money from your retirement account can affect how much you’ll have to pay in taxes. You’ll owe taxes on pre-tax money. You won’t owe taxes on Roth earnings as long as you are age 59½ or older and it’s been at least five years since your first Roth contribution. If required by law, Vanguard will withhold some taxes for you. You may need to pay a 10 percent federal penalty tax if you take money out early.
When you convert pre-tax money to Roth, you’ll owe taxes on the whole amount. When you convert traditional after-tax money, you’ll owe taxes on just the earnings. You should talk with a tax advisor before you do this. Later, when you take the Roth money out, you won’t owe taxes as long as you meet two conditions. First, you’re at least age 59½. Second, you converted the money at least five years earlier. If you take the money out early, you may have to pay income tax and a 10% federal penalty tax. If required by law, Vanguard will withhold some taxes for you.
© 2024. Adobe and the Adobe logo are either registered trademarks or trademarks of Adobe in the United States and/or other countries.