What is the difference between my "pre-tax" and "after tax" contributions?
Answers | 2
For example, if you earn $75,000 and make a pre-tax contribution of 10% into a 401k account, then your current taxable income is lowered by 10% x $75,000, or $7,500. Instead of paying taxes on $75,000, you will be paying taxes only on $67,500. (And you have saved $7,500 towards retirement!)
An after-tax contribution is made from your earnings after taxes have been paid.
In both cases, however, you will potentially benefit from the power of long term, tax-deferred compounding.
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