After-Tax Contribution

DEFINITION of 'After-Tax Contribution'

A contribution made to any designated retirement or any other account after taxes has been deducted from an individual's or companies taxable income. After-tax contributions can be made on a tax deferral, and on a non tax deferral basis, pending on the type of account the entity is making contributions to.

BREAKING DOWN 'After-Tax Contribution'

Contributions made to any form of retirement or investment account on an after-tax basis is the common form of contributions. Most investors prefer the thought of not paying taxes on the principal when they make a withdrawal from the investment. After-tax contributions would be beneficial if tax rates are expected to be higher in the future.

Contributions made to a tax deferral account require the individual to claim these contributions on their income tax filing each year, which entitles the tax payer to a refund based on their contributions at the going tax rate.

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