After-tax money in your 401(k) refers to contributions made to the plan that were taxed in the year they were earned, as opposed to contributions made with pre-tax dollars, which are taxed when they are withdrawn from the plan.
When you roll your 401(k) into a traditional IRA, the after-tax money in the 401(k) can be separated from the pre-tax money and moved into a separate, designated Roth IRA. This allows the after-tax money to continue to grow on a tax-free basis, provided certain conditions are met. The pre-tax money can then be rolled into a Traditional IRA and will be taxed when withdrawn.
It is important to note that by rolling the after-tax portion of your 401(k) into a Roth IRA provides you with the ability to take tax-free withdrawals in the future, provided you meet certain conditions.
Before making any decisions about what to with after-tax money in a 401(k), it may be beneficial to consult with a Financial Advisor to determine what is best for your individual situation and financial goals.