So, I have a Roth 401k with my employer.

I always thought that the Roth meant that I am contributing after-tax dollars into the account.

I just realized the following:

For simplicity, let's assume:

  • I make $1000/month in base pay pre-tax,
  • choose 5% as my contribution amount for Roth 401k, and
  • my effective income tax rate is 20%.

I thought this would mean that I contribute 5% i.e. $40 of the after-tax money i.e. $800 (after the 20% tax rate on $1000).

But it seems like I am actually putting in $50 which is 5% of pre-tax money into 401k...

What am I missing here?

2 Answers 2


5% contribution rate refers to your salary, regardless of the taxes. The employer has no knowledge of your effective tax rate.

The difference between pre-tax and after-tax/Roth contributions is that with the latter, despite not receiving the money (it goes to the 401k), you'll be taxed on it. I.e.: it will be included in the amount reported in box 1 of your W2.


Despite the term being used "post tax", if you specify x% on the company forms it is x% of your gross pay.

Net pay isn't just gross pay minus taxes. Remember besides Federal income tax & state income tax, you also pay for medicare and social security as taxes. You also may have deductions for health insurance, Flexible spending, life insurance, commuting expenses, and in one company I worked for the coffee club. Some of these items are pre-tax, some are post-tax. If they did a percentage anyplace else than gross, at what point would the percentage be applied?

If you goal is x% of net, then you will have to adjust your percentage on the form to make the math work. Some companies (most ?) will allow you to specify a fixed amount in $'s instead of a percentage.

Deciding which method to use (% or $) depends on what you are trying to accomplish, and how variable your paycheck is.

  • If you want to contribute exactly enough to maximize the company match, then use the % method. It works even if your pay is variable.
  • If the goal is to make sure that you will hit the yearly maximum on the last paycheck of the year, then the $ method is preferred. The money is constant but if the gross varies so will the percentage each check.
  • 1
    If you want to max out, you can just ask that 50% of your income be put in the 401(k). The employer will automatically limit contributions to the maximum. Depending on how your employer implements the limit, this may mean front-loading the contributions, but if you want to maximize your contributions, then that's a good thing. You do have to be careful, though, if you and/or your spouse is contributing to another retirement account. Commented Dec 30, 2023 at 2:46

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