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Chapter 6. Saving Pre-Tax or After-Tax—D... > Which Is Better—Pre-Tax or After-Tax... - Pg. 66

Saving Pre-Tax or After-Tax--Does It Really Matter? In 2002 you'll be able to save $11,000 pre-tax in your 401(k) plan (tack on another $1,000 if you're 50 or older). These limits will increase by $1,000 each year until 2006. In addition to the $11,000 pre-tax savings, you'll also be able to save up to $29,000 more after-tax. So while our advice on saving pre-tax hasn't wavered, you might consider after-tax savings after all. Just make sure you start with pre-tax and end with after-tax rather than the other way around. 66 An after-tax contribution means that you pay income taxes first and then your contribution is de- posited into your 401(k) account. Let's say John chooses to contribute 10 percent of his pay to his 401(k) account, on an after-tax basis. Here's what happens: John's salary Taxes paid @ 28% Pay after taxes 401(k) contribution John's take-home pay $35,000 ­ 9,800 $25,200 ­ 3,500 $21,700 John's 401(k) contribution of $3,500 (10 percent of $35,000) is deducted from his paycheck after taxes. Which Is Better--Pre-Tax or After-Tax Contributions? There are a number of pros and cons to contributing either way. It all depends upon what side of the street you're on. (You know, is the glass half-full or half-empty?) Let's start from the top. Before-Tax or After-Tax? Which Gives Me More Money?