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contributes is a percentage of your after-tax contribution but it goes into a traditional 401(k), so it gets taxed when withdrawn.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 However, that $3,000 is put in to a traditional 401(k), so it is taxed when withdrawn.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?

  • 1
    Do you have a source for the employer match of a Roth 401(k) going into a Traditional account instead of going into the Roth? I'm not saying you're wrong, I just haven't heard of that and I wouldn't think that would be the case, but I've never had reason to look into it.
    – briantist
    May 28, 2015 at 20:30
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    @briantist en.wikipedia.org/wiki/Roth_401%28k%29 Second paragraph under "The Roth 401(k) plan"
    – wired_in
    May 28, 2015 at 20:33
  • Thanks, I never knew that. That being said, what is your question?
    – briantist
    May 28, 2015 at 20:35
  • @briantist plus you can just google information on Roth 401(k)s, it's well documented.
    – wired_in
    May 28, 2015 at 20:35
  • @briantist My question is, does what I said above make sense, and is it true, and if so, how should that factor in to the decision of whether or not to use a Roth 401(k).
    – wired_in
    May 28, 2015 at 20:37

5 Answers 5


There are two problems with your understanding:

  • The companies I have worked for match based on a percentage of your salary. That is a percentage of your gross pay. It was not based on the percentage of your net pay or after-tax pay. Net pay would be too hard to know. What I mean is the amount of insurance, HSA, Flex spending accounts, etc. determine how much is taxable and thus what is your after-tax pay . In fact if you split between the Roth and Pre-tax forms of the 401K your retirement contribution would influence the amount of the after tax contribution.

  • All matching funds no matter the nature of the contribution (pre-tax, post-tax, Roth) are always considered pre-tax. You didn't pay taxes on the money when it was credited to your account.

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    Your first point may be true. My employer matches $0.50 of every dollar the employee contributes (50%). So my contribution to my Roth 401(k) is after-tax, and they give me $0.50 for every $1.00 of that after-tax contribution. So it is based on the after-tax amount, not gross income, at least for my employer. Your second point I have understood all along, and that doesn't change this issue.
    – wired_in
    May 28, 2015 at 20:53
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    Put another way, my employer match is a percentage based on my contribution, so I am contributing less money to a Roth 401(k) because it's after-tax, therefore my employer is contributing less, yet it still gets taxed.
    – wired_in
    May 28, 2015 at 21:02
  • @wired_in Maybe your employer does it differently than typical, but in general the way Roth 401(k) plans work is that you contribute a percentage of your gross salary with post-tax dollars. So based on that, the number of dollars you contribute is the same, regardless of whether you choose to fund your retirement with pre-tax (Traditional) or post-tax (Roth) dollars. Therefore, since the number of dollars you contribute is the same, the number of dollars your employer contributes will also be the same.
    – Craine
    May 29, 2015 at 3:33
  • @Craine: No, because $1 of pre-tax money is equivalent to less than $1 of post-tax money. If you compare both in terms of pre-tax money, then the post-tax contribution for the same nominal amount is a greater contribution (it takes more out of your pocket and gives you more back when you withdraw it).
    – user102008
    May 29, 2015 at 8:54
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    @user102008 but what the OP is assuming is that by going with a Roth, the total dollars contributed by his employer will be less going in, and then taxed going out resulting in missed dollars. This is not the case, because the contribution, and therefore the match, is based on the percentage of gross income, whether pre- or post-tax. If he contributes 5% of $80k, they will deduct $4k from his salary and put it into his account, regardless of if the dollars funding it are pre or post tax. They will also match with $4k of their own, which will always be pre-tax, and be taxed on withdrawal
    – Craine
    May 29, 2015 at 15:50

I may be missing something here, but I don't think this is a disadvantage. The fact that the employer contribution will be taxed is the same as it would be if it were a match in a traditional account, so the amount you lose to taxes on it is a wash.

The employer contribution is only smaller if you can't afford to contribute as much to the Roth because it's post-tax, and therefore your contribution is under the cap for the match.

If you're contributing the maximum the employer will match or higher, then I don't think there's any disadvantage on the match portion.

Editing to add some things that came to light in comments:

First, the 5% cap on employer contributions is calculated on the gross, even in a Roth account.

Second, the taxing of the amount contributed to a Roth does not reduce the dollar amount that goes into the Roth account, it just reduces your net pay.

So if your contribution is $100 to a Traditional account, your gross pay is reduced by $100 and your Traditional account gains $100.

In the Roth, your gross pay is still taxed as though that $100 were included, but the $100 is put into the Roth. The tax portion of that "after tax" money does not reduce the amount of the contribution.

  • The employer match (for me) is a percentage. More precisely, they give me $0.50 for every $1 I contribute (50%). If I contribute pre-tax dollars to a traditional 401(k), the 50% applies to the pre-tax dollars. If i am contributing after-tax dollars to a Roth 401(k), the percentage is applied to that after-tax amount, thus the contributions are less for Roth, and they still get taxed later.
    – wired_in
    May 28, 2015 at 20:57
  • Anything I contribute over 5% of my income does not get matched. So it's not like I can increase the amount I contribute to increase the employer match
    – wired_in
    May 28, 2015 at 21:00
  • If the maximum amount you could get a match for is $5,000, then the match on $5,000 would be $2,500, whether the $5k is pre-tax or post-tax. The match is always pre-tax, so it's the same regardless. The percentage is 5% of your gross, even in a Roth account.
    – briantist
    May 28, 2015 at 21:01
  • The maximum match amount is a percentage, not a fixed amount. It's 5%, not a fixed dollar amount like $5,000.
    – wired_in
    May 28, 2015 at 21:04
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    I see, you think that if you choose to contribute $100 to your Roth, and your taxes amount to 25%, that your Roth account will contain +$75. But that's not how it works. The Roth account will contain +$100. But your gross pay will have been reduced by around $133 (the amount of gross needed to be $100 net).
    – briantist
    May 28, 2015 at 21:10

Your employer's matching contribution is calculated based on the dollar amounts you end up putting in. The nature of your 401(k) contribution—whether pre-tax or Roth after-tax—doesn't matter with respect to how their match gets calculated, and their match always goes into a pre-tax account, even if you are contributing after-tax.

The onus is on you to choose a contribution amount that maximizes your employer match regardless of the nature of your contribution. Maximizing your employer match using Roth after-tax contributions will eat up more of your annual gross salary, but as long as you are willing to do that then you won't leave free employer match money on the table.

Roth after-tax contributions don't get the tax deduction inherent in a pre-tax contribution. The tradeoff is that you end up with less take-home pay per period if you contribute the same number of dollars on a Roth after-tax basis to your 401(k) as opposed to on a pre-tax basis.

For instance, to make a maximum $18,000 Roth after-tax contribution to a 401(k), it's going to cost you a lot more than $18,000 of your annual gross salary to net the same $18,000 number. (On the flip side, the Roth money is worth more in retirement than pre-tax money, because it won't be subject to taxes then.)

However, 401(k) plan contribution amounts are almost always expressed as a percentage of gross salary, i.e. in pre-tax terms, even when electing to make after-tax contributions! So when electing after-tax, one is implicitly accepting that the contribution will cost more than the percentage of gross salary, because you'll need to pay the tax on a gross amount that would yield the same number of dollars but as an after-tax amount.


The reason your 401k match is always counted as pre-tax whether you are contributing to a traditional 401k or a Roth is that the money is contributed by the employer and is not counted as income, and that contribution is not taxed as income. Should you wish to pay taxes on it and convert it to a Roth, you can do that, though perhaps not until you change jobs.

  • I'm fine with them treating the employer contribution as pre-tax, but the amount you actually get from the employer is less with a Roth 401(k) vs. a Traditional. That's a negative for Roth 401(k)'s but I don't see this explained anywhere.
    – wired_in
    May 28, 2015 at 20:48
  • If you assume the cost is higher to achieve the 5% match, you're right, because you are paying in after-tax dollars. You are compensated for those additional dollars by not paying taxes on that money when you withdraw it at retirement. You do not have the option to pay the extra taxes now for the employer match. Tough luck, but hardly a new disadvantage. May 28, 2015 at 22:16

The error in the example is here: "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."

You set your contribution to Roth 401k as a function of the gross, 80,000. You choose 5% and contribute 4000
Your employer matches 4000.

At the end of the year, your taxable income to the IRS is 80000, and you pay 30% or 24000. You have 80K-4K-24K to live on, or 52K

If you chose the alternate regular 401k,then you contribute 4K, your income to the IRS is (80-4=) 76k, and you pay 30%, 22.8K in tax. You have 80-4-22.8 or 53.2K to live on. Or, to come at it the other way, you have 4000*30% =1200 extra tax reduction in your income this year.

If the extra income in 401k versus extra current year tax in Roth IRA means you have to reduce less, like 2800K to the roth so you maintain a 53.2K lifestyle, then yes, the Roth IRA match is reduced. If you have the cash flow to prepay the current year tax and maximum-match contribution, you will get the full match based on your gross income.

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