If you are saving up to the employee limit in your workplace retirement accounts and looking to add more, you’ll be glad to hear that employers are making it easier than ever to make extra after-tax contributions directly from your paycheck and get tax-free growth in the future. The maximum most people focus on is the $22,500 that workers can defer into a workplace retirement plan in 2023, with an additional $7,500 catch-up for those 50 and over. But there’s another IRS limit that matters to high-earners, especially in 2023 because of a $5,000 jump due to inflation. You can now contribute a maximum of $66,000 for both the employer and employee contribution together — $73,500 with the catch-up.
That opens a window to make a strategic move with after-tax contributions that you can then immediately use to do a backdoor conversion into a Roth account within your retirement plan. The benefit of making after-tax contributions, generally, is to avoid paying tax on the growth until you withdraw the money in retirement, otherwise, you could just keep the money in your pay and put it in a taxable brokerage account. If you move that money to a Roth account, however, you won’t incur tax on the growth at all. In addition, the Roth account will not be subject to required minimum distr …