Editing 401(k) (section)

=== Traditional ===
The tax-saving benefits from Traditional accounts (as measured by the difference in outcomes vs a normally taxed account) are the sum of two benefit-factors.<ref>{{Cite web|url=https://www.advisorperspectives.com/articles/2019/05/25/how-to-properly-frame-401-k-benefits|title=How To Properly Frame 401(k) Benefits}}</ref><ref>{{Cite web|url=https://zenodo.org/records/8206825|title=Excel spreadsheet calculates benefit factors}}</ref> 1) A possible benefit (or cost) is from the eventual withdrawal multiplied by the difference in tax rates between contribution and withdrawal. The hope is that the retirement rate will be lower, for a benefit. Effective tax rates are used to incorporate the impact of contributions and draws on the saver's qualification for benefits from other income-tested programs. 

2) Everyone always receives the same benefit as from a Roth account - the benefit from permanently tax-free profits on after-tax savings. The conceptual understanding{{cn|date=September 2024}} is that the contribution's tax reduction is the government investing its money alongside the saver's, for him to invest as he likes. They become co-owners of the account. The government's share of the account (funding plus the tax-free profits earned by it) at withdrawal fully funds the account's withdrawal tax calculated at the contribution's tax rate. So the contribution's tax reduction is never a benefit, and profits are never taxed. The withdrawal tax is conceptually an allocation of principal between owners, not a 'tax', and there is no benefit 'from deferral'.

For pre-tax contributions, the employee still pays the total 7.65% payroll taxes (social security and medicare). If the employee made after-tax contributions to the 401(k) account, these amounts are commingled with the pre-tax funds and simply add to the 401(k) basis. When distributions are made, the taxable portion of the distribution will be calculated as the ratio of the after-tax contributions to the total 401(k) basis. The remainder of the distribution is tax-free and not included in gross income for the year.