How Contributions and Loan Repayments Are Deducted from Your Paycheck and Funded to the 401(k) Plan

Your 401(k) plan makes saving for retirement easy by automatically deducting contributions—and any loan repayments—straight from your paycheck. But have you ever wondered exactly how those dollars make their way from your employer into your 401(k) account?

Here’s a breakdown of how it works behind the scenes.

Once you enroll in the 401(k) plan and choose your deferral amount (e.g., 6% of your salary), that percentage is automatically deducted from each paycheck—before you ever see the money in your bank account.

Types of Contributions That May Be Deducted:

• Pre-tax contributions: Reduce your taxable income today

• Roth contributions: Taken after taxes, with tax-free withdrawals in retirement

• Catch-up contributions: Extra savings if you're age 50 or older

Your elected contributions apply to:

• Regular paychecks

• Bonuses and commissions (if allowed by the plan)

Tip: You can change your contribution rate anytime through your NestEggs online account

If your employer offers a match or profit-sharing contribution, it’s typically calculated based on your paycheck deferrals and funded at the same time or on a different schedule—such as quarterly or annually.

These contributions are:

• Funded directly by your employer (not deducted from your pay)

• Subject to vesting, depending on plan rules

If you’ve taken a 401(k) loan, your repayments are also deducted automatically from your paycheck. These are typically:

• Fixed payments spread over the loan term (e.g., 5 years)

• Post-tax, meaning you pay taxes now, and again when you withdraw in retirement

Loan repayments include:

• Principal repayment (returning the amount borrowed)

• Interest (which is credited to your own account—not the plan sponsor)

Missed a paycheck? Your plan may allow a grace period or catch-up schedule. Check with NestEggs for confirmation.

After deductions are made from your paycheck, your employer:

1. Batches the payroll contributions and loan repayments

2. Sends the funds to the 401(k) plan’s recordkeeper

3. Allocates the money to your selected investment options

Timing matters: The Department of Labor requires that contributions be sent to the plan as soon as reasonably possible, generally within 3–7 business days after payroll is processed.

You can verify that your contributions and loan repayments are being properly processed by:

• Logging into your 401(k) account online

• Reviewing your transaction history or recent activity

• Comparing plan contributions with your pay stub deductions

If something looks off—such as a missing contribution or incorrect amount—contact NestEggs right away.

Saving for retirement doesn’t require action every paycheck—just smart setup and occasional monitoring. Your 401(k) contributions and loan payments are working in the background to build your financial future.