I feel like there is a negative to Roth 401(k)s that I haven't seen mentioned anywhere after doing some major research.
Assuming the employer match amount is a percentage of the after-tax amount that you contribute to your Roth 401(k), it seems to me you aren't getting as much employer money (regardless of after-tax/pre-tax) as you would with a traditional 401(k). This is because the amount the employer contributes is a percentage of your after-tax contribution but it goes into a traditional 401(k), so it gets taxed when withdrawn.
For instance, let's say you make $80,000 a year and your employer matches 100% of your contributions up to 5% of your income.
If you contribute 5% of your annual income to a Traditional 401(k) that would be $4,000 of pre-tax money contributed. Then when you withdraw that money in retirement, it would be taxed at, let's say, 25%, so you would actually get $3,000.
Now, if you contribute 5% to a Roth 401(k), your employer would match your after-tax 5% contribution. If the tax rate is 25%, that would be 5% of $60,000, which is $3,000. However, that $3,000 is put in to a traditional 401(k), so it is taxed when withdrawn. Assuming the tax rate is still 25% when you withdraw, you are only getting $2,250. Essentially you are giving up $750 of free money in this case.
It seems to me if the employer contribution is put into a traditional 401(k), the percentage match should be a percentage of the pre-tax amount, so that you are getting the same match as you would with a traditional 401(k).
Can anyone confirm that what I said above is indeed how it generally works? If so, is this a legitimate downside to Roth 401(k)'s or am I missing something? If it should be considered, how much of a factor is it in deciding whether to use Traditional or Roth 401(k)s?