A 401(k) lets you invest for retirement directly from your paycheck. The big fork in the road is traditional (pre-tax) versus Roth. Same contribution limit. Different tax timing. The right choice depends on your current tax rate, your expected rate in retirement, and how much you care about take-home pay today.
This guide sticks to IRS rules for 2026 contribution limits and shows how each option hits a paycheck using our calculators. It is education, not tax advice for your specific return.
How each option is taxed
Traditional (pre-tax) 401(k)
Contributions come out of your paycheck before federal income tax is calculated, which lowers taxable wages for income tax. Growth is tax-deferred. Qualified withdrawals in retirement are taxed as ordinary income.
Roth 401(k)
Contributions are after-tax: they do not reduce today’s federal income tax withholding the way traditional contributions do. Qualified withdrawals of contributions and earnings in retirement are tax-free under the Roth rules your plan follows.
Employer match dollars are typically pre-tax even if you elect Roth contributions for your own deferrals. Confirm the plan document; match treatment can affect your eventual tax mix.
Neither type of elective deferral usually reduces Social Security or Medicare wages. FICA still applies to the contributed amounts at the rates in IRS Topic 751.
Effect on take-home pay today
Because traditional contributions shrink federal taxable income, they cushion the hit to your paycheck. Roth contributions do not.
Example from the paycheck calculator: a single filer in Texas earning $75,000, paid every two weeks, with no 401(k) keeps about $61,593 a year (~$2,369 per paycheck). Elect 10% to a traditional 401(k) ($7,500 a year): federal income tax falls from about $7,670 to about $6,020, and net cash pay falls to about $55,743. Roughly $1,650 of the reduction is lower tax; the rest is money that moved into the 401(k).
A Roth 401(k) contribution at the same 10% would move $7,500 into the account without that $1,650 federal income-tax break, so take-home pay would drop by roughly the full contribution relative to the no-deferral baseline (FICA unchanged). Exact withholding still depends on your W-4.
Use the income tax calculator to see how pre-tax deductions change annual federal tax and marginal bracket.
2026 contribution limits and catch-ups
Per the IRS retirement topics page on 401(k) contribution limits:
- Employee elective deferrals (traditional and Roth combined, across plans that share the limit): $24,500 in 2026
- SIMPLE 401(k) elective deferrals: $17,000 in 2026
- Catch-up for age 50+: $8,000 in 2026 for traditional/safe harbor 401(k) plans (plan must allow it)
- Higher catch-up for ages 60–63 under SECURE 2.0: $11,250 in 2026 for those plans
- Overall annual additions limit (employee + employer + forfeitures, with catch-up rules as described by the IRS): $72,000 in 2026 before catch-up add-ons
Plans can set lower caps. If you use more than one employer’s plan, you are responsible for staying under the personal elective-deferral ceiling.
Employer match basics
A common match is 50% of the first 6% of pay you defer — contribute 6%, receive 3% from the employer. Contribute less than the matched percentage and you leave free money on the table. Match formulas vary; read your summary plan description.
In the retirement calculator, match is modeled as a percentage of your contribution up to a limit percent of salary. That lets you see how capturing the full match changes the balance decades out.
Factors that tip the decision
Lean traditional when:
- You are in a high marginal bracket now and expect a lower one in retirement
- You need every dollar of take-home pay today
- You want to reduce taxable income for other reasons (for example, staying under an IRMAA or credit phaseout — verify with a professional)
Lean Roth when:
- Your current marginal rate is low (early career, parental leave year, temporary income dip)
- You expect higher tax rates later, or want tax-free flexibility in retirement
- You value hedging against future tax-law risk
Many savers split contributions when the plan allows, building both taxable and tax-free buckets. Revisit the mix after a raise, marriage, or move to a different state tax regime.
Next steps
- Confirm whether your plan offers Roth deferrals and how match is taxed.
- Check you are capturing the full match before optimizing traditional vs Roth.
- Model take-home changes in the paycheck calculator and long-run balances in the retirement calculator.
- Stay under the IRS elective-deferral limit for the year.
Pre-tax versus Roth is a timing choice on taxes. Make it deliberately, then automate the contribution so the debate happens once a year — not every payday.