401(k) vs. Roth 401(k): How Each Affects Your Net Paycheck

The paycheck mechanics

How a traditional 401(k) deduction hits your paycheck

When you contribute to a traditional 401(k), your employer subtracts the deferral from your gross wages before calculating federal income tax withholding. The effect is a lower taxable income on every paycheck and therefore a larger net deposit. Your W-2 at year-end will show reduced Box 1 wages.

Crucially, traditional 401(k) contributions do NOT reduce your FICA wages. Social Security and Medicare tax are calculated on your full gross pay regardless of your 401(k) election. This is a key difference from HSA contributions, which do reduce FICA when made through a Section 125 plan.

How a Roth 401(k) deduction hits your paycheck

A Roth 401(k) contribution is deducted from your pay after income tax withholding has already been calculated on your full wages. Your employer withholds federal (and state) income tax as if you made no retirement contribution at all, then subtracts the Roth deferral from what remains. The result: a noticeably smaller net paycheck compared to the same dollar amount going into a traditional 401(k).

The tradeoff is that every dollar in the Roth 401(k), including all future investment growth, comes out completely tax-free in retirement (assuming you are 59 and a half or older and the account has been open at least five years).

Side-by-side paycheck comparison at different salaries

The table below shows the biweekly net paycheck for a single filer in 2026, contributing the maximum $24,500 per year ($942.31 per biweekly paycheck), under each option. State taxes are excluded for clarity.

Illustrative examples using 2026 federal brackets for a single filer. FICA included. State income tax excluded. Use our paycheck after 401(k) calculator for a personalized estimate.

Notice how the traditional 401(k) paycheck advantage grows as income rises until the contribution maxes out a single bracket. At $150,000, part of the deferral falls in the 24% bracket instead of 22%, so the traditional savings per paycheck is slightly larger.

When does the traditional 401(k) win?

The traditional approach wins if your tax rate in retirement will be lower than your current rate. Common scenarios:

• You are in your peak earning years and expect significantly lower income after retirement.
• You plan to retire in a no-income-tax state like Florida, Texas, or Nevada.
• You will rely on multiple income sources in retirement and can strategically withdraw to stay in lower brackets.
• You are in the 32% bracket or higher and the immediate tax deduction is worth more than future rate uncertainty.

When does the Roth 401(k) win?

The Roth approach wins if your retirement tax rate will equal or exceed your current rate:

• You are early in your career in a lower tax bracket and expect income (and tax rates) to rise.
• You believe tax rates will increase by the time you retire. Roth locks in today's known rate.
• You already have large pre-tax balances in traditional IRAs and 401(k)s. Adding Roth gives you tax diversification in retirement, letting you blend taxable and tax-free withdrawals to manage your bracket.
• You want to avoid Required Minimum Distributions. Starting in 2024 under SECURE 2.0, Roth 401(k) balances are no longer subject to RMDs during the owner's lifetime, just like a Roth IRA.

Can you split between traditional and Roth?

Yes. Most plans that offer a Roth 401(k) option allow you to designate any percentage of your elective deferral as traditional and the rest as Roth. The combined total cannot exceed $24,500 (or $32,500/$35,750 with catch-up). Splitting can be a useful hedge: you get some current tax relief while building a tax-free bucket for retirement.

A common strategy is to contribute enough to the traditional side to drop your taxable income to the top of the 22% bracket, then direct the remainder as Roth. This minimizes the marginal rate on your traditional deduction while still building Roth assets.

How does the employer match work?

Regardless of whether your contributions are traditional or Roth, employer matching contributions historically go into a separate pre-tax account. Under SECURE 2.0, employers may now offer the option to designate match contributions as Roth. If your employer does so, those Roth match dollars are taxable income to you in the year they vest. Most employers have not yet adopted this option, so your match likely still goes pre-tax.

Either way, the employer match does not count toward your $24,500 employee deferral limit. It counts toward the total annual addition limit (employee + employer), which is $70,000 for 2026 (under age 50). Use our employer 401(k) match calculator to see how much your match adds.

FICA taxes: neither option helps

Both traditional and Roth 401(k) contributions are subject to FICA taxes (Social Security at 6.2% up to the wage base, Medicare at 1.45% with no cap, plus 0.9% Additional Medicare Tax above $200,000 for single filers). Unlike HSA payroll deductions, 401(k) deferrals do not reduce your FICA wages. This means your Social Security benefit calculation is unaffected by your 401(k) choice.

Roth 401(k) and high earners: SECURE 2.0 catch-up rule

Starting in 2026, if your FICA wages from the plan sponsor exceeded $150,000 in the prior year, any catch-up contributions (the additional $8,000 or $11,250) must be made on a Roth basis. You cannot make pre-tax catch-up contributions at that income level. This rule comes from SECURE 2.0 Section 603 and the threshold is indexed for inflation. For workers age 50 and above earning over that threshold, see our catch-up contributions guide for 50+.

For a calculator that projects long-term growth differences, visit our Roth vs. traditional 401(k) calculator. To understand all the deductions reducing your paycheck, see pre-tax vs. post-tax deductions explained.