Increasing the Amount, You Contribute

Contributing more to your employer’s retirement plan will lower your take-home pay—but maybe not by as much as you think. The actual impact depends on whether you’re making pre-tax or Roth contributions.

Understanding Pre-Tax Contributions

Pre-tax contributions are deducted from your gross pay, meaning before taxes are taken out. This lowers your taxable income, reducing the amount you pay in taxes. Because of this tax savings, the reduction in your take-home pay is less than the amount you contribute.

A Quick Example

Let’s say you increase your contribution by $10 per paycheck. If you’re in the 24% federal income tax bracket, it would only reduce your take-home pay by $7.60, not the full $10. That’s because the $10 isn’t taxed—it goes straight into your retirement account. Otherwise, you would have paid $2.40 in taxes on that $10 and only kept $7.60 in your paycheck.

The Bottom Line for Pre-Tax Contributions

So, increasing your pre-tax contributions may have a smaller impact on your current paycheck than you expect—and a big benefit for your future.

What About Roth Contributions?

Roth contributions are taken from your net pay, which means taxes have already been withheld. So, if you contribute $10 to a Roth account, your take-home pay drops by the full $10—dollar for dollar.

This means Roth contributions affect your paycheck more today, but offer tax-free withdrawals in retirement. If Roth makes sense for your financial goals, be sure to budget for the larger impact on your take-home pay now.

Tools and Final Thoughts

There are online calculators available to help estimate how changing your contributions—whether pre-tax or Roth—will affect both your current paycheck and your future savings. While contributing more will reduce your take-home pay today, it likely won’t be as much as you think and could greatly improve your retirement readiness and long-term financial wellbeing.