Prior to the advent of the Roth 401(k) some 401(k) plans allowed after-tax 401(k) contributions. Post the advent of the Roth 401(k) some plans still do not offer a Roth 401(k) – since it is not mandatory. Lastly, some plans allow for pre-tax, Roth and after-tax contributions. Combined contributions from all three sources cannot exceed the 2017 IRS limit of $54,000. Based on your age, after-tax contributions allow you to more than double or more than triple the contribution limits of pre-tax and Roth 401(k) plans.
Since the IRS places modest contributions limits on Roth IRAs (subject to income bands), after-tax contributions provide a back-door means to accumulate future Roth IRA balances following a rollover. Unlike a Roth 401(k), only the principal portion (not gains) of post-tax contributions can be rolled over to a Roth IRA. The same tax free withdrawals rules and RMD rules described above apply to this type of Roth IRA rollover. IRS Guidance Notice #2014-54 clearly allows for after-tax contributions to be rolled over to a Roth IRA.