A traditional 401(k) costs 82 cents per dollar; a Roth costs the full dollar

Published 2026-11-09 · updated 2026-11-09 · figures for tax year 2026

A 401(k) election changes two lines on a pay stub and leaves one of them untouched. A traditional contribution comes out before income tax, so it reduces federal and state withholding — but not Social Security or Medicare, which are charged on gross wages whatever you defer. A Roth contribution comes out after income tax, so it reduces take-home by the full amount and reduces no tax at all. On $60,000 the difference between the two is $1,080 in the current year, and that number is the whole point.

Three paths on the same gross salary

The FICA column is the same number three times. That is not a rounding artefact: pre-tax retirement contributions reduce income tax, and only income tax. Social Security and Medicare are computed on wages before the deferral. A calculator that lets a 401(k) reduce FICA overstates take-home every month of the year.

What a pre-tax dollar actually costs

The traditional path removes "$6,000 of pay" from the gross line but only $4,920 from the take-home line. Measured per dollar, that is $0.82 of take-home given up for every $1 deferred — because $1,080 of the contribution was tax that no longer applies: $720 federal and $360 California.

The Roth path costs the full $6,000. Nothing is saved now; the saving, if any, arrives at withdrawal, when a qualified distribution is not taxed at all. So the two are not "cheaper" and "more expensive" versions of the same thing — they are the same contribution taxed at two different points in time.

What the percentage does as the salary moves

Elections are written as a share of salary, and the share is what most people hold constant. At 6%, 10% and 15% of $60,000 the contribution is $3,600, $6,000 and $9,000, and take-home falls by $2,952, $4,920 and $7,380 respectively. Note that the cost rises by less than the contribution each step, for the same reason as before.

Three details that decide the real answer

The match is not in this arithmetic. An employer match is additional pay, not a deduction — it never appears on your side of the ledger, and it is usually taxed on the employer's schedule rather than yours. If the plan matches 50% up to 6%, the effective return on the first 6% is 50%, which dwarfs the income-tax question above. The limit worth checking is the annual deferral cap, not the percentage.

Bracket position decides the value of the deferral. The $1,080 saved here is 18.0% of the contribution — your combined marginal rate at $60,000. At a much lower salary the deferral saves less per dollar, because more of it would have been taxed at 12% rather than 22%. At a much higher one it saves more. The rule of thumb that pre-tax is better for high earners and Roth for low ones is really just this arithmetic, stated without the numbers.

State tax is deferred too, and it may never come back. Moving to a state with no income tax before withdrawing is a real planning outcome for many people — the $360 avoided in California today is avoided permanently if the withdrawal happens in Texas. That asymmetry is worth more than most of the annual-fee comparisons people spend time on.

What this model leaves out

The figures assume the contribution stays within the annual deferral limit, that the plan is a standard pre-tax or designated-Roth arrangement, and that there are no plan-level restrictions or after-tax contributions. They do not model the saver's credit, which can make a modest deferral on a low salary worth more than the tax saved, or state-level retirement-income exclusions at withdrawal. Those are plan- and state-specific; the arithmetic here is the base case they sit on top of.

Put a number on it

The same mechanisms on an actual salary. Every figure here is computed by the engine that serves the calculators, so it matches the page it opens — nothing is copied.