Pre-tax vs Roth 401(k): what each does to your paycheck

The short version

A traditional (pre-tax) 401(k) contribution comes out before federal income tax and, in most states, before state income tax. You pay income tax on the money later, when you withdraw it in retirement. A Roth 401(k) contribution comes out after tax. You pay the income tax now and, if you follow the rules, the money and its growth come out tax-free later.

Neither kind lowers Social Security or Medicare. Both are charged on your full pay, including what you put into a 401(k).

The 2026 limits

In 2026 you can put up to $24,500 of your own pay into 401(k), 403(b) and federal Thrift Savings Plan accounts combined, traditional and Roth together. Workers 50 and over can add a catch-up of $8,000, and those aged 60 to 63 a larger catch-up of $11,250. Employer matching contributions do not count against your limit and do not appear on your paycheck.

How much a pre-tax contribution really costs

Because a traditional contribution lowers your taxes now, it shrinks your take-home pay by less than the amount you save. The table compares putting $7,500 (10% of a $75,000 salary) into a traditional 401(k) and into a Roth 401(k), for a single filer. The last column is the share of the contribution you get back as lower tax this year.

In Texas the only saving is federal income tax: $1,650 on $7,500, because the contribution comes out of the 22% federal bracket. In California the state income tax saving is added on top, for $2,250 in all.

Pennsylvania is the odd one out. It is the one state that taxes traditional 401(k) contributions in the year you make them, so the state saving is zero and the result matches Texas: $1,650. Local taxes vary too. New York City's tax uses state taxable income, so a traditional contribution lowers it. Columbus and most Ohio cities tax Medicare wages, and Philadelphia taxes gross pay, so a 401(k) does not lower those city taxes at all.

Which is better?

The usual rule of thumb compares your tax rate now with your expected rate in retirement:

• Traditional tends to win if your tax rate now is higher than it will be when you withdraw: mid-career and high earners, people in high-tax states who plan to retire somewhere cheaper, and anyone who needs the bigger paycheck today.
• Roth tends to win if your rate now is low and likely to rise: early-career workers in the lower brackets, people in no-tax states who may retire in a taxing state, and savers who want tax-free money to draw on later.
• Splitting between the two is a reasonable hedge when you are not sure. Many plans let you set separate percentages.

Remember that a Roth contribution of the same size leaves you with a smaller paycheck, because you are paying the tax now. If your budget is set by take-home pay, the honest comparison is a traditional contribution against a smaller Roth contribution that costs the same out of each paycheck.

Things that are easy to miss

• Employer matches go into a pre-tax account, even when you contribute to the Roth side (some plans now let you choose Roth treatment for the match, which makes it taxable to you now).
• A traditional contribution lowers your adjusted gross income, which can help you qualify for income-tested credits and deductions, including the federal deductions for tips and overtime, which shrink at higher incomes.
• An HSA, if you have one through work, lowers federal income tax and Social Security and Medicare as well, which a 401(k) does not. The limits guide lists the 2026 HSA limits.

To see the effect on your own pay, open the 401(k) calculator or enter a contribution in the main calculator under "Retirement and benefits". Both show the per-paycheck cost for your state and city.