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So say my gross is $4000 per check, $200 is going towards my 401K.

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My suggestion would be to check the math on your check of all the deductions.

Your example doesn't necessarily mean that the 5% isn't coming out after taxes. It just means they figured the 5% figure on the gross pay amount, but they could be deducting 5% of your gross pay from the net pay.

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The 5% going into my 401K is definitely 5% of my gross pay

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Yep.

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but my taxable gross is my gross less what I put in my 401K.

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Well this would make it a traditional 401k contribution. Deducting the amount you contribute before you pay taxes on the money.

What I am saying is maybe on your check they take the 5% out of your base (gross) salary and then take out taxes and insurance and arrive at your "net" pay, but then they deduct the 5% of your gross from that amount. That would be a Roth 401k contribution in that it was deducted from your paycheck after you paid taxes.

I might have missed something, but the roth account will be seperate from the 401k account.

Roth account is not separate in his example.

You can choose a Roth 401k or Traditional 401k.

Roth 401k you pay tax now and it is tax free later.
ex. salary 50k you save 5% so you save $2500 for the year. It is taxed $625 in the 25 percent tax bracket.
Later when you withdraw whatever amount it is tax free after 59 1/2 years old.

Traditional 401k you don't pay tax now it is deferred.
When you withdraw it is taxed as income.
So it you make 35k from soc security and you take out 5k from trad 401k you are taxed on 40k net income.

This is because the systems aren't smart enough to know your tax rate. All they can reliably count on is your gross pay. You have to make the tax correction calculation on your own. For example:

- You want to put 10% in retirement (5% in 401k, 5% in Roth)
- Your gross pay is $1000/check
- 5% to your 401k is $50
- 5% to your Roth is going to be 5%x(1-tax%) since it needs to have taxes removed and is not the same as 5% going into traditional 401k.
- Lets say you are taxed at 20%. Your 5% becomes 4% (5%*(1-.20)=4%.
- Set your Roth witholding to 4% and the numbers would be like you are expecting.

This is how I have to do it in the systems at my work, anyway.

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Can you chose both?

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Sure. The contribution limit applies to combined. Also, any company match will be pre-tax by default.

Do you max an external Roth account?

It's a good idea for tax diversity, but if contributing to Roth because of the tax advantages, why not go all in on the Roth? The company match provides some diversity.