How are employee contributions categorized in a typical 401(k) plan?

In a typical 401(k) plan, employee contributions are categorized as both pre-tax and after-tax contributions. Pre-tax contributions allow employees to defer taxes on the amount contributed until they withdraw the funds, which can lower their taxable income for the year in which the contributions are made. This is the traditional approach to 401(k) contributions.

On the other hand, after-tax contributions refer to funds that are deposited into the plan after income tax has already been paid on that money. Employees may choose to make after-tax contributions in addition to their pre-tax contributions, enabling them to grow their account balance tax-deferred until they withdraw funds, particularly if they later convert these amounts to Roth accounts.

While Roth contributions are indeed a unique feature of some 401(k) plans that allow participants to make contributions with after-tax dollars, categorizing employee contributions simply as "only as Roth contributions" would exclude the more common pre-tax contribution option available to many employees. Additionally, employer contributions are separate and do not fall under employee contributions, which clarifies why they are not included in this context. This hybrid approach to contributions is key to providing employees with flexibility in managing their retirement savings strategies.