How Are Roth 401(k) Contributions Calculated?

Roth 401(k) contributions are calculated by multiplying the deferral percentage you elected by your gross pay each pay period, with the resulting dollar amount routed into your Roth account after income taxes are withheld on the full paycheck. If you set your rate at 10% and earn $5,000 gross, $500 goes into the Roth 401(k). Unlike a traditional 401(k) contribution, that $500 doesn’t reduce your taxable income for the period. For 2026, the federal cap on elective deferrals is $24,500, with higher amounts allowed for workers 50 and older.¹

The Percentage Applied to Gross Pay

When you enroll, you pick a contribution rate, usually expressed as a percentage of gross pay. Gross pay is everything you earned before taxes, insurance premiums, and other deductions. Each pay period, payroll multiplies your gross earnings by that percentage and sends the result to your Roth account.

What counts as “gross pay” for this calculation depends on your employer’s plan document. Most plans use base salary or hourly wages plus bonuses, commissions, and overtime. Plans are allowed to exclude overtime and bonuses as long as the exclusion doesn’t disproportionately favor highly compensated employees.² Say you earn a $5,000 monthly salary plus a $1,000 bonus. If your plan includes bonuses, a 10% deferral sends $600 into the Roth 401(k) that month. If your plan excludes bonuses, only $500 goes in. Your summary plan description spells out which items are counted.

There’s also a ceiling on how much of your pay the plan can consider in the first place. For 2026, the annual compensation limit is $360,000.³ If you earn $400,000, your plan applies your deferral percentage only to the first $360,000. A 6% rate against that ceiling produces $21,600 for the year, not $24,000.

Why Your Taxable Income Doesn’t Drop

This is where the paycheck feels different from a traditional 401(k). A traditional contribution comes out before federal income tax is calculated, shrinking your taxable wages for the period. A Roth contribution doesn’t. Your employer figures income tax withholding on the full gross pay and then routes your contribution out of what remains.

Here’s the mechanics on a $2,000 paycheck with a 10% Roth election. Federal and state income tax withholding is calculated on $2,000. If that combined withholding comes to $400 and your Roth contribution is $200, your take-home pay is $1,400. Had the same $200 gone to a traditional 401(k), withholding would have been calculated on $1,800, producing a slightly smaller tax bite and a somewhat higher take-home for that period.

One point that catches people off guard: Social Security and Medicare taxes work the same way for both contribution types. Roth and traditional 401(k) contributions are both subject to FICA withholding.⁴ The only payroll tax that behaves differently between the two is federal (and typically state) income tax withholding.

2026 Contribution Limits

Federal law caps how much you can defer across all your 401(k) accounts combined, Roth and traditional together, in a single calendar year. For 2026, the limit under IRC Section 402(g) is $24,500.¹ That figure covers only your elective deferrals. Anything your employer contributes on your behalf sits outside it.

If you turn 50 or older by December 31, 2026, you can add catch-up contributions on top. The 2026 catch-up is $8,000, bringing the total possible employee deferral to $32,500.³

A narrow age band gets more. Under SECURE 2.0, participants who turn 60, 61, 62, or 63 during the year qualify for a super catch-up of $11,250 instead of $8,000.¹ Someone in that range can defer up to $35,750 in 2026. Once you turn 64, you drop back to the $8,000 catch-up.

Your payroll system tracks year-to-date deferrals and automatically stops contributions once you reach the applicable limit. If you have 401(k) accounts with multiple employers in the same year, each employer only sees its own plan. Monitoring the combined total is your responsibility, and you need to notify your employers if you’re on track to exceed the cap.⁵

How Employer Matching Contributions Are Figured

Most employers that offer a match calculate it as a percentage of your gross pay rather than dollar-for-dollar against your contribution. A common formula is 50% of your contributions up to the first 6% of pay. Under that formula, if you earn $6,000 per month and defer at least 6% ($360), the employer adds $180. Contributing less than 6% leaves match dollars unclaimed.

The match anchors to gross pay, so your marginal tax rate has no effect on the formula. Whether you’re taxed at 22% or 37%, the employer’s calculation runs off compensation, not net pay.

Employer match dollars have historically gone into a pre-tax account even when the employee used a Roth 401(k). SECURE 2.0 changed that. Plans can now let employees designate matching and nonelective employer contributions as Roth contributions.⁶ If your plan offers this option and you elect it, those employer dollars land in your Roth account and count as taxable income to you for the year. The employer doesn’t withhold payroll taxes on those amounts at the time of contribution, so you may need to adjust your W-4 or plan for a higher bill at filing time.

The Combined Contribution Cap

Beyond the $24,500 employee deferral limit, a separate ceiling applies to the total of your contributions plus your employer’s. For 2026, that combined limit under IRC Section 415(c) is $72,000.³ Catch-up contributions don’t count toward this cap, so a worker aged 50 or older could theoretically reach $80,000 in total plan contributions ($72,000 plus the $8,000 catch-up), or $83,250 for those in the 60 to 63 super catch-up range. In practice, hitting those numbers requires substantial employer contributions on top of maxed-out employee deferrals.

Nondiscrimination Limits for High Earners

Even well below the federal deferral cap, your plan may restrict your contribution percentage for a different reason. The IRS requires 401(k) plans to pass the Actual Deferral Percentage (ADP) test each year, comparing the average deferral rates of highly compensated employees to everyone else. For 2026, you’re considered highly compensated if you earned more than $160,000 from the employer in the prior year.⁷

Rough version of the test: if rank-and-file employees average a 4% deferral rate, highly compensated employees generally can’t average more than about 6%. The formula allows the highly compensated group’s average to be the greater of 125% of the non-highly-compensated average, or the lesser of 200% of that average and the average plus 2 percentage points.⁸ When a plan fails the test, highly compensated employees may receive refunds of excess contributions early the following year, an unwelcome result if you thought you’d maxed out your Roth 401(k).

Some employers avoid this altogether by adopting a safe harbor plan design, which satisfies the nondiscrimination rules automatically in exchange for mandatory employer contributions. If your plan is safe harbor, ADP testing won’t limit your deferral rate.

Mandatory Roth Catch-Up for High Earners Starts in 2027

Starting in 2027, SECURE 2.0 requires that catch-up contributions for certain high earners be made exclusively on a Roth basis. If your FICA wages from the prior year were $150,000 or more, you lose the option to make pre-tax catch-up contributions, and any catch-up must go into the Roth side of the account.⁹ The threshold looks at your W-2 from the employer sponsoring the plan, not household income.

The IRS’s final regulations apply the requirement to taxable years beginning after December 31, 2026, making 2026 the last year high earners can direct catch-ups to either a traditional or Roth account by choice.⁹ If your FICA wages fall below $150,000, the rule doesn’t affect you.

Fixing an Over-Contribution

If your total deferrals across all plans exceed the 402(g) limit, the excess must be withdrawn by April 15 of the following year. When corrected by that deadline, the excess is taxed in the year you made the contribution, any earnings on the excess are taxed in the year they’re distributed, and no early withdrawal penalty applies.¹⁰

Miss that April 15 deadline and the result gets ugly. The excess is taxed twice, once in the year you contributed it and again when it’s eventually distributed from the plan. The late distribution may also trigger the 10% early withdrawal penalty, 20% mandatory withholding, and spousal consent requirements.⁵ Easy to prevent, expensive to fix.

1
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
2
Internal Revenue Service. Compensation Definition in Safe Harbor 401(k) Plans
3
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living
4
Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare, or Federal Income Tax?
5
Internal Revenue Service. 401(k) Plan Fix-It Guide – Elective Deferrals Weren’t Limited to the Amounts Under IRC Section 402(g)
6
Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2
7
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
8
Internal Revenue Service. 401(k) Plan Fix-It Guide – The Plan Failed the 401(k) ADP and ACP Nondiscrimination Tests
9
Internal Revenue Service. Treasury, IRS Issue Final Regulations on New Roth Catch-Up Rule, Other SECURE 2.0 Act Provisions
10
Internal Revenue Service. Retirement Topics – What Happens When an Employee Has Elective Deferrals in Excess of the Limits