The information posted on PayrollTalk is for informational purposes only and is not intended to substitute for obtaining accounting, payroll, tax, or financial advice from a professional accountant.

401k Roth Contribution Calculation

Hello Payroll Gurus,

Happy New Years to everyone! I need your help on this.

We are working to implement the 401k Roth deduction however there seems to be a confusion on rather this deduction is calculated based on gross wages or taxable wages (gross - taxes). According to our 401k vendor it should be based on taxable wages which I don't feel it's correct. I know this is an after tax deduction but if an employee elected 5% to be deducted every pay period then the deduction should be calculate as 5% of gross wages.

Can someone confirm if my theory is correct? Or should the 5% be calculated towards the taxable wages?

Appreciate your help on this.


  • rrupertrrupert ✭✭✭

    Read the Plan Document. As the TPA/401k vendor to show you where it states compensation for Roth deferrals. Obviously it can't be gross-taxes for pre-tax deferrals or you'd have a circular function!

    In the end it's going to get back to what your plan document states and then you have to get your payroll system to calculate it correcty. I've always seen it done on 401k compensation wages (so actually neither of your choices). Some employers omit OT, bonuses, car allowances, cell phone allowances, etc from gross, but generally NOT taxes.

Sign In or Register to comment.