So, I have a Roth 401k with my employer.
I always thought that the Roth meant that I am contributing after-tax dollars into the account.
I just realized the following:
For simplicity, let's assume:
- I make $1000/month in base pay pre-tax,
- choose 5% as my contribution amount for Roth 401k, and
- my effective income tax rate is 20%.
I thought this would mean that I contribute 5% i.e. $40 of the after-tax money i.e. $800 (after the 20% tax rate on $1000).
But it seems like I am actually putting in $50 which is 5% of pre-tax money into 401k...
What am I missing here?
