401(k) Paycheck Impact: What a Deferral Really Costs Per Pay Period

The arithmetic

Your paycheck arrives on a schedule, so the whole calculation runs per pay period rather than per year:

$$G = \frac{S}{N}, \qquad D = c\,G$$

where:

• $G$ is gross pay for one pay period, in dollars.
• $S$ is annual salary, in dollars.
• $N$ is the number of pay periods in the year.
• $c$ is your deferral election, written as a decimal.
• $D$ is the dollars deferred out of that one paycheck.

A pre-tax deferral is excluded from taxable wages, so the income tax withheld falls along with it. Take-home pay changes by:

$$\Delta_{\text{pre-tax}} = -D\,(1 - t)$$

where:

• $\Delta_{\text{pre-tax}}$ is the change in take-home pay for that paycheck, in dollars.
• $t$ is your marginal income tax rate, written as a decimal.

Read that expression as the headline of the module. Defer $D$ and your take-home falls by less than $D$. The missing piece, $t\,D$, is income tax you did not pay this period.

A Roth deferral comes out of wages that have already been taxed. Taxable income does not move, so the paycheck absorbs the whole election:

$$\Delta_{\text{roth}} = -D$$

where:

• $\Delta_{\text{roth}}$ is the change in take-home pay for that paycheck under designated Roth treatment, in dollars.

The gap between the two treatments is exactly $t\,D$ per paycheck, at every salary and every deferral rate.

Worked through: a $70,000 salary paid biweekly gives gross pay of $2,692.31 across 26 periods. An 8% election defers $215.38. At a 22% marginal rate the tax saved is $47.38, so take-home falls by $168.00 rather than by $215.38. The identical election under Roth treatment takes the full $215.38.

That is the same election, the same account, and a $47.38 difference in what lands in your bank. The module shows both columns on one screen because the number people carry in their head is $D$, and $D$ is the wrong number for one of the two.

Payroll tax does not move

An elective deferral is excluded from federal income tax withholding at the moment it is made. It is not excluded from FICA. Section 3121(v)(1) of the tax code counts a deferral under a cash or deferred arrangement as wages for Social Security and Medicare tax.

One consequence follows, and the interface states it beside the breakdown. The $t\,D$ above is income tax only. Payroll tax is charged on the full gross under either treatment, so the FICA lines on a pre-tax paycheck and a Roth paycheck are identical. A calculator that nets payroll tax out of the deferral overstates the take-home saving by several percent of pay.

This module states that rule rather than projecting it. No wage base, no rate schedule, no employer share.

The employer match, as plan documents write it

A match is not a flat bonus percentage. It has two independent parts, and it is computed on each pay period's own compensation:

$$M = \min(c,\;\kappa)\; m \; G$$

where:

• $M$ is the match credited for that pay period, in dollars.
• $\kappa$ is the cap, the share of pay above which further deferral is not matched.
• $m$ is the match rate, the cents added per dollar you defer.

The common US formula is fifty cents on the dollar up to 6% of pay, which is $m = 0.5$ and $\kappa = 0.06$. The schedule is piecewise linear with a kink at $\kappa$, and flat above it. Below the cap, one more point of deferral collects more match. Above the cap, one more point collects none. The interface flags the first case, since that is the only region where the match responds at all.

The cost side of the same dollar is worth writing out. Inside the cap, one dollar of pre-tax deferral costs $(1 - t)$ of take-home and credits $(1 + m)$ to the account:

$$\rho = \frac{1 + m}{1 - t}$$

where:

• $\rho$ is dollars credited to the account per dollar of take-home given up.

At a 22% marginal rate with a 50% match, $\rho$ is 1.92. Above the cap the match term drops out and $\rho$ falls to $1/(1-t)$, or 1.28. Under Roth treatment the denominator is 1, so $\rho$ is 1.50 inside the cap and 1.00 above it. Those four figures are arithmetic. They say nothing about what belongs in your budget, and the module does not pretend otherwise.

Reaching the annual limit

The 2026 elective deferral limit is $24,500. A catch-up of $8,000 is available from the year you turn 50. In the four calendar years covering ages 60 to 63, that catch-up is $11,250 instead. So the annual ceiling takes one of four values:

$$L = \begin{cases} 24{,}500 & \text{age} < 50\\ 32{,}500 & 50 \le \text{age} \le 59\\ 35{,}750 & 60 \le \text{age} \le 63\\ 32{,}500 & \text{age} \ge 64 \end{cases}$$

where:

• $L$ is your annual elective deferral ceiling for 2026, in dollars.
• $\text{age}$ is your age at the end of the calendar year, which is what eligibility turns on.

The level rate that lands exactly on that ceiling depends on how much of the year is left:

$$c^{\ast} = \frac{L - Y}{G\,(N - p)}$$

where:

• $c^{\ast}$ is the deferral rate that reaches the limit on the last paycheck of the year.
• $Y$ is what you have already deferred this year, in dollars.
• $p$ is the number of pay periods already elapsed.

The denominator is the part that surprises people. Elapsed periods compress the ones remaining. On a $200,000 salary paid biweekly, $c^{\ast}$ is 12.25% starting in January, 24.5% starting at the midpoint, and 53% with six paychecks left.

Two feasibility limits sit outside this formula. Plans usually cap the election itself, often somewhere near 75% of pay. And a pre-tax deferral cannot exceed what the paycheck holds after payroll tax and any other withholding, which binds well before 100%.

The front-loading trap

Reaching the limit early sounds like a scheduling detail. In a plan without a true-up it costs real money, because the match is computed per pay period and stops when the deferral stops.

Compare two schedules that defer the same amount over the year.

The even schedule

The rate is held flat all year, at whatever rate the limit allows:

$$M_{\text{even}} = m\,S\,\min\!\left(c,\; \frac{L}{S},\; \kappa\right)$$

where:

• $M_{\text{even}}$ is the match collected over the full year under a level election, in dollars.
• $L/S$ is the level rate that exactly exhausts the limit over a whole year.

Every pay period carries an active deferral, so every pay period earns match.

The front-loaded schedule

The rate is held at $c$ until the limit is exhausted, then the deferral goes to zero for the rest of the year:

$$\phi = \min\!\left(1,\; \frac{L}{c\,S}\right), \qquad M_{\text{front}} = m\,S\,\min(c,\;\kappa)\,\phi$$

where:

• $\phi$ is the fraction of the year in which a deferral is still being made.
• $M_{\text{front}}$ is the match collected under that schedule, in dollars.

Match accrues only during $\phi$. Once the limit is exhausted the period's deferral $D$ drops to zero, and the matched amount $\min(D,\;\kappa\,G)$ drops to zero with it. The election $c$ has not moved and neither has the cap. There is nothing left to defer, and a pay period that defers nothing is matched on nothing.

What the difference collapses to

Take the case where the election sits above both the cap and the level rate $L/S$. The forgone match becomes:

$$\Phi = m\,\kappa\left(S - \frac{L}{c}\right)$$

where:

• $\Phi$ is the match given up by front-loading rather than spreading, in dollars.

Look at what is absent. $N$ has dropped out entirely, so pay frequency does not drive the loss. What drives it is how far the election sits above the rate that would have carried the deferral to December.

Numbers make the size of it visible. A $200,000 salary, paid biweekly, with a 30% election and a fifty-cents-to-6% formula: each paycheck defers $2,307.69, and the limit is exhausted partway through the eleventh one. Eleven periods of match at $230.77 gives $2,538 against the $6,000 an even schedule would have collected. The gap is $3,462, and it is invisible on every payslip involved.

The module counts whole pay periods rather than treating the year as continuous. The final partial deferral still earns a full match when what remains of it is above the cap, so the exact figure sits a little below the closed form above.

The trap needs $c\,S > L$ to exist. Below that rate nothing is exhausted early, both schedules run all year, and the two match totals are equal. Counting whole pay periods pushes the separation a little to the right of $L/S$: just above that rate the year merely ends on a partial deferral, and a partial deferral still earns a full match while what remains of it clears the cap. So $L/S$ is where the limit first becomes reachable, not where the loss starts. The chart marks $L/S$ and then names the rate at which the two curves actually part, after which the elected-schedule curve declines in a staircase as each further step of rate drops another pay period out of the schedule.

The true-up

A plan with a true-up re-runs the match formula on the full plan year after it closes and pays whatever the per-period calculation missed. Under that provision $\Phi$ is zero and the schedule stops mattering. Plenty of plans do not offer one. The summary plan description is where it is written down, and the toggle in the module exists because the answer differs by employer.

What this model does not do

Being explicit about this matters more than the paycheck figure itself.

Withholding is not tax. The module applies one flat marginal rate to the deferral. Your employer withholds using the IRS percentage-method tables and whatever sits on your Form W-4. The real paycheck change will differ by a few dollars, and the difference reconciles when you file.

One rate stands in for a bracket schedule. A deferral peels dollars off the top of your income. A deferral large enough to cross a bracket boundary saves at the top rate on the first slice and a lower rate on the rest, so a single $t$ overstates the saving in that case.

State tax is not modelled. A few states tax elective deferrals when they are made rather than when they come out. Folding state tax into $t$ is only correct where your state follows the federal treatment.

Other pre-tax deductions are absent. Health premiums under a cafeteria plan, HSA contributions, and similar items reduce both taxable wages and FICA wages, and they are usually taken before the deferral. The model starts at gross salary and applies one deduction.

Plan compensation is not payroll compensation. Plans define the pay a match is computed on, and many exclude bonuses, overtime, or commissions. Section 401(a)(17) also caps the pay usable for the match at $360,000 for 2026, so a high earner's match stops growing before their salary does.

Match dollars are credited, not owned. A vesting schedule decides how much of the employer's money survives a job change, and it can erase several years of the figures on this screen. That mechanism is separate, and it is covered in what does vested mean in a 401(k).

The overall contribution ceiling is outside the arithmetic. Section 415(c) caps everything landing in the account in one year, your deferrals plus the match plus any other employer contribution, at $72,000 for 2026.

The catch-up may not be yours to characterise. From 2026, catch-up contributions must be designated Roth for participants whose prior-year FICA wages from the plan sponsor exceeded $150,000. The final regulations generally apply from 2027, with good-faith interpretation permitted before then. The treatment toggle here is a modelling choice, not a statement of what your plan allows.

Nothing compounds. This module stops at the paycheck and the match. Growth, fees, and the balance at retirement are the job of the 401(k) projector.

The year is assumed regular. No mid-year raise, no bonus payroll, no unpaid leave, no auto-escalation, and no 27th pay date, which biweekly payrolls hit in some calendar years.

Frequently asked

Why did my take-home fall by less than my contribution?

Because a pre-tax deferral reduces the wages your income tax is withheld on. Defer $200 at a 22% marginal rate and roughly $44 of that comes out of withholding rather than out of your pocket, so take-home drops by about $156. The account still receives the full $200. That wedge is the single mechanism this module exists to show.

Does a Roth deferral save anything on the current paycheck?

No. Roth contributions are made from wages after income tax has been withheld, so the paycheck absorbs the entire election. The trade is that the account and its growth are not taxed on the way out, which is a different question and a different module.

Why doesn't my 401(k) contribution cut my Social Security tax?

Because the exclusion is written for income tax and not for FICA. Section 3121(v)(1) treats the deferred amount as wages for Social Security and Medicare purposes at the time of deferral. The practical effect is that payroll tax on your paycheck is the same whether you defer 0% or 20%.

Does front-loading always cost me match?

Only when the election is high enough to exhaust the annual limit before the last paycheck, and only in a plan without a true-up. Below the rate $L/S$ the deferral runs all year and both schedules collect identical match. A little above it they still do, because a year that ends on one partial deferral is matched in full as long as that deferral clears the cap. Past that point the loss grows with the election, and the chart shades the difference.

My plan has a true-up. Does any of this apply?

The forgone-match part does not. A true-up restores the shortfall after the plan year closes, though usually months later, so the money sits uninvested in the meantime. The per-paycheck arithmetic in the first section is unaffected either way.

What deferral percentage should I choose?

That is a personal financial question, and this is an educational tool, so it is not one we answer. What the module shows is the arithmetic underneath: what each rate costs per paycheck under each tax treatment, what match each rate collects, and where the limit and the cap sit relative to the rate you entered.

Sources and further reading

• Internal Revenue Service, 401(k) and profit-sharing plan contribution limits. The elective deferral limit, the age-50 catch-up, and the higher catch-up for ages 60 to 63, re-indexed every plan year.
• Internal Revenue Service, COLA increases for dollar limitations on benefits and contributions. The 2026 table, including the $360,000 compensation limit and the $72,000 overall annual additions limit.
• Internal Revenue Service, 401(k) plans: deferrals and matching when compensation exceeds the annual limit. A worked example of a participant who keeps deferring after her pay passes the section 401(a)(17) compensation limit, while the match is computed only on the compensation up to that limit.
• Office of the Law Revision Counsel, 26 U.S.C. § 3121(v)(1). The provision that keeps elective deferrals inside the FICA wage base.
• Internal Revenue Service, Internal Revenue Bulletin 2025-49, Notice 2025-67. The 2026 cost-of-living figures, including the $150,000 Roth catch-up wage threshold under section 414(v)(7)(A).

Educational research only. Not investment advice, not tax advice, and not a statement of what your own plan permits.

Methodological sources

• Internal Revenue Service (2026). 401(k) plan overview.
• Internal Revenue Service (2026). Retirement topics — 401(k) and profit-sharing plan contribution limits.
• Internal Revenue Service (2026). 401(k) plan fix-it guide — Employer matching contributions weren't made to all appropriate employees.
• Office of the Law Revision Counsel, U.S. House of Representatives (2023). 26 U.S.C. § 402(g) — Limitation on exclusion for elective deferrals.
• Office of the Law Revision Counsel, U.S. House of Representatives (2023). 26 U.S.C. § 3121(v) — Treatment of certain deferred compensation and salary reduction arrangements.
• The Vanguard Group (2025). How America Saves 2025.

Read the note behind this module

• How Much Should You Contribute to a 401(k)? The One Rate With an Objective Answer
• What Does Vested Mean in a 401(k)? Vesting Schedules Explained
• 457(b) vs 401(k): The Plan With No Early Withdrawal Penalty

Educational purposes only. Not investment advice.