After-Tax 401(k) Withdrawals: How They’re Taxed

After-tax 401(k) contributions can be withdrawn without owing income tax, because you already paid tax on that money going in. But the earnings on those contributions are taxable, and withdrawals must generally come out pro-rata, meaning part contributions and part earnings. If you’re under 59½, the 10% early-withdrawal penalty applies only to the taxable earnings portion, never to your own contributions.

By the About401K editorial team · Facts verified against IRC §72(e)(8) and IRS Notice 2014-54 · Updated September 24, 2026

First, the distinction that trips everyone up. After-tax contributions and Roth 401(k) contributions are not the same thing, even though the names sound interchangeable. Both go into the plan with money you have already paid tax on. The difference shows up later. Roth earnings can come out completely tax-free in retirement, while earnings on plain after-tax contributions are always taxable, no matter how long you wait. If your statement shows an “after-tax” source listed separately from “Roth,” this page is about that after-tax money. (Why contribute after-tax at all?)

Can I withdraw just my after-tax contributions and pay no tax?

Not quite, and this is the part that disappoints people. The obstacle is the pro-rata rule, which is the single most misunderstood feature of after-tax money.

“Pro-rata” simply means proportionally. Under IRC §72(e)(8), any distribution from your after-tax subaccount has to carry with it a proportionate share of the earnings sitting in that same subaccount. You cannot cherry-pick only the already-taxed dollars, which the rules call your basis. Basis is just the money you contributed and already paid tax on, as opposed to the investment growth on top of it.

So if your after-tax bucket is 80% basis and 20% earnings, every dollar you take out arrives 80% tax-free and 20% taxable. The proportions come from the whole subaccount, not from the particular dollars you feel like withdrawing.

The pre-1987 exception

There is one group of contributions that escapes the pro-rata rule entirely. If you made after-tax contributions before 1987 and your plan has tracked them separately ever since, those grandfathered dollars can come out basis-first. That means pure contributions with no earnings attached and no tax due, until the pre-1987 pool runs dry.

Contributions made from 1987 onward follow the ordinary pro-rata rule. Whether your plan separately accounts for pre-1987 money will either show on your statement or be available from the recordkeeper, so ask before assuming you do or don’t have this benefit.

The 10% penalty and after-tax withdrawals

Here is the reassuring part. The penalty applies only to the earnings, never to the money you contributed.

The reason is mechanical rather than generous. The penalty under IRC §72(t) attaches to the taxable portion of a distribution. Your after-tax contributions are not taxable when they come back to you, so there is nothing for the penalty to grab onto.

In the example above, someone under 59½ pays income tax plus the 10% penalty on $2,000 of earnings and pays nothing at all on the $8,000 of basis. After age 59½ the penalty disappears completely, and only ordinary income tax on the earnings portion remains.

When you can withdraw

After-tax contributions have the most liberal withdrawal rules of any money in a 401(k). Federal law allows plans to make them withdrawable at any time, while you’re still working, at any age, with no hardship to prove and no reason to give.

Plan documents then impose their own schedules on top of that permission. Some plans allow withdrawals whenever you ask, others limit you to once a quarter or once a year, and some apply waiting periods to recent contributions. You may see a rule along the lines of “contributions must have been in the plan 24 months” for certain sources.

Your plan’s rules, not the IRS rules, are the binding constraint here. Check your summary plan description or call the administrator before you count on the money being available.

The smarter move: roll it instead of cashing it

Since IRS Notice 2014-54, you can split a distribution from the after-tax subaccount between two destinations. The contributions (your basis) go to a Roth IRA, and the earnings go to a traditional IRA.

The result is worth pausing on. You owe zero tax today, and your basis now grows tax-free forever inside the Roth IRA instead of merely coming back to you tax-neutral. That single maneuver is the mechanic behind the mega backdoor Roth.

If you’re pulling after-tax money out because you no longer want it sitting in the plan, rather than because you genuinely need cash this month, the split rollover is almost always the better move than a cash withdrawal. Ask the recordkeeper specifically for a split rollover under Notice 2014-54, since not every service representative will volunteer it.

How the withholding and paperwork work

Cash withdrawals of the taxable earnings portion carry 20% mandatory federal withholding if the money was eligible for rollover. The basis portion has no withholding at all, because it isn’t taxable in the first place.

The following January you’ll receive a Form 1099-R. Box 1 shows the gross distribution, box 2a shows the taxable amount, and box 5 shows your after-tax basis. Those three boxes are what your tax return relies on.

Related reading

• After-tax 401(k) contributions: why they exist and when they make sense
• The 10% early-withdrawal penalty and its exceptions
• Withdrawing at 59½: in-service rules

Sources: IRC §72(e)(8), §72(t) · IRS Notice 2014-54 · IRS: rollovers of after-tax contributions