Hello!
I am a newbie and just signed on a 401k Roth plan. I still don't understand the basic math behind my personal contributions.
a) my employers contribution will be always pre-tax [employers match]
b) my personal contribution is after tax when choosing ROTH
To make the calculations fairly simple, let's take an example with an annual gross income from 100k.
Personal Contribution: 6%
Employers Contribution: up to 6% with 100%
TRADITIONAL 401k - PRE TAX:
When calculating the Traditional, it seems pretty easy. 6% from 100k is $6k. The employer match is 100%, which is another 6k. The 6% is taken from the gross. That makes a total of 12k annual contribution from both parties. 12k will be tax deferred and also invested into the 401k Traditional Funds. ROTH 401 - AFTER TAX:
The employers contribution will be handled like the Traditional 401k. It's pre-tax. That means, 6% from the gross of 100k, is 6k. That money will be tax deferred. But how is the employee's contribution handled with the ROTH?
6% contribution.. is that 6% calculated also from the gross of 100k?
If that's the case... we would have also 6k that can be invested.. but somehow we have to pay taxes on those 6k before investing, right? Otherwise it wouldn't be after tax? So my questions is:
How and when will the 6% for the 401k ROTH be taxed?
How is this thing calculated?
100.000 * 6% = $6000 and from the $6000 I'll have to pay taxes?
Or is this all wrong.. and do I have to calculate my 6% Roth Contribution after tax... what means.. I can't use the 100k as gross income... instead.. I have to use the 100k for my gross income first, then... minus all the taxes... and then.. what's left over as my net pay... I'll have to multiply it by 6%????
I am totally lost on that... just would like to know how that works!
Thank you so much for any little help,
appreciate it!
