Pre-Tax vs Roth 401(k): How Each Affects Your Paycheck

Both a pre-tax 401(k) and a Roth 401(k) let you save for retirement through your employer. The difference is when you pay taxes — and that choice has a real, visible effect on your paycheck every two weeks.

How Pre-Tax 401(k) Contributions Work

With a traditional (pre-tax) 401(k), your contribution comes out of your paycheck before federal (and usually state) income taxes are calculated. This reduces your taxable income for this year.

Example: $70,000 salary, contributing 6% pre-tax = $4,200/year contribution.

• Taxable income drops from $70,000 to $65,800
• Federal tax reduction: approximately $924 (at 22% marginal rate)
• Net cost to your paycheck: $4,200 - $924 = $3,276 per year, or $126/biweekly
• You put in $4,200, but your check only shrinks by about $3,276

The trade-off: in retirement, withdrawals are fully taxable as ordinary income. The IRS eventually gets its share.

How Roth 401(k) Contributions Work

With a Roth 401(k), your contribution comes out of your paycheck after taxes. Your taxable income is not reduced — you pay full income tax now.

Same example: $70,000 salary, contributing 6% Roth = $4,200/year.

• Taxable income stays at $70,000
• No immediate tax savings
• Net cost to paycheck: the full $4,200 per year, or $162/biweekly
• Your check shrinks by the full contribution amount

The trade-off: in retirement, qualified Roth withdrawals are completely tax-free — including all the investment gains accumulated over decades.

The Paycheck Difference Side by Side

On a $70,000 salary contributing 6%:

• Pre-tax 401(k): Biweekly check shrinks by ~$126
• Roth 401(k): Biweekly check shrinks by ~$162
• Difference: About $36/paycheck, $936/year

The Roth option costs you more upfront but may pay off substantially in retirement if your future tax rate is equal to or higher than today's.

Which Is Better: Pre-Tax or Roth?

The classic answer: if you expect to be in a higher tax bracket in retirement than you are today, Roth wins. If you expect to be in a lower bracket, pre-tax wins.

In practice, neither you nor anyone else knows exactly what future tax rates will be. A diversified approach — contributing to both — hedges that uncertainty.

Lean toward Roth if:

• You're early in your career with low income now (expecting earnings to grow)
• You think tax rates will be higher in the future
• You want tax-free income in retirement (useful for managing Medicare premiums and avoiding taxing Social Security)
• You have no current Roth IRA and want to build tax-free assets

Lean toward pre-tax if:

• You're in your peak earning years (high tax bracket now, likely lower in retirement)
• You need the immediate cash flow — the pre-tax reduction hurts your paycheck less today
• Your state has high income taxes now but you plan to retire in a low/no-tax state

FICA: The Same Either Way

Both pre-tax and Roth 401(k) contributions are subject to FICA taxes (Social Security and Medicare). Unlike income tax, you cannot shelter wages from FICA with retirement contributions. The 7.65% FICA withholding applies to your full gross wages regardless of which option you choose.

2026 Contribution Limits

For 2026, you can contribute up to $23,500 to your 401(k) (pre-tax, Roth, or combined). If you're 50 or older, the catch-up limit allows an additional $7,500, for a total of $31,000. For those 60–63 specifically, a higher catch-up of $11,250 applies under the SECURE 2.0 Act.

These limits apply to employee contributions across all accounts with one employer. Employer matching contributions don't count toward the limit.

Can You Do Both?

Yes. Many employers offer both pre-tax and Roth options within the same 401(k) plan, and you can split your contribution however you'd like — as long as combined contributions don't exceed the annual limit. Splitting allows tax diversification in retirement, giving you flexibility to draw from taxable and tax-free buckets as needed.

Use our take-home pay calculator to see how increasing your 401(k) contribution affects your actual biweekly paycheck. Try different contribution percentages to find the balance that works for your budget.