What type of contributions are taken from net income after taxes?

After-tax contributions refer to those funds that are contributed to a retirement plan after taxes have already been deducted from the individual’s income. This means that the contributions made will not reduce the individual’s taxable income for the year in which they are made. Instead, these contributions can grow tax-deferred while in the retirement account, but the individual will need to pay taxes again when distributions are taken from the account in retirement.

This approach allows individuals to invest in their retirement funds with the understanding that they have already paid taxes on that income, which can be beneficial in certain tax scenarios. For instance, individuals who believe their tax rate may be higher at retirement than it is currently might prefer making after-tax contributions, allowing them to potentially withdraw funds tax-free in the future through certain account types, like Roth 401(k) plans.

The other options revolve around different tax treatments and contributions to retirement plans. Pre-tax contributions are made before taxes are deducted and can lower taxable income in the current year. Employer contributions can be made both pre-tax and as part of matching contributions, which typically incentivize employees to contribute to their plans but aren’t considered after-tax contributions themselves. Matching contributions also come into play when an employer matches an employee's contributions but are not a