Putting money in a traditional 401(k) reduces your paycheck, but by less than the amount you contribute. The reason is that contributions are made before federal income tax, so you pay tax on less income.
How the math works
If you earn $75,000 and contribute 10%, $7,500 goes to your 401(k) and your taxable wages for federal income tax drop to $67,500 (before the standard deduction). Your income tax falls by the tax you would have paid on that $7,500, which is 12% or 22% of it for most single filers. Social Security and Medicare are still calculated on the full $75,000, because 401(k) deferrals do not reduce those wages.
Example: $75,000, single filer, no state income tax
These figures use 2026 federal rules in a state without income tax. A state that taxes wages usually adds a further saving, because most states also exclude traditional 401(k) deferrals.
| Contribution | Goes to 401(k) | Federal income tax | Take-home per year | Take-home drops by | Cost per $1 saved |
|---|---|---|---|---|---|
| 0% | $0 | $7,670 | $61,593 | — | — |
| 5% | $3,750 | $6,845 | $58,668 | $2,925 | $0.78 |
| 10% | $7,500 | $6,020 | $55,743 | $5,850 | $0.78 |
| 15% | $11,250 | $5,470 | $52,543 | $9,050 | $0.80 |
At 10%, you move $7,500 into retirement but your yearly take-home falls by only about $5,850. In other words, each dollar you save costs about 78 cents of take-home pay.
Traditional vs Roth
A traditional 401(k) lowers today's taxes and you pay income tax when you withdraw in retirement. A Roth 401(k) does not lower today's tax, so your take-home falls by the full contribution, but qualified withdrawals are tax-free. The calculator on this site models traditional pre-tax contributions.
Employer match
If your employer matches part of your contribution, that match is extra pay that does not show up in your paycheck. It is usually the best return available, so many people contribute at least enough to get the full match.
Limits
The IRS limits how much you can defer each year. For 2026 the employee limit is $24,500, with higher catch-up amounts for people 50 and over. Check the IRS site for the current figures, and be aware that high earners can be subject to special rules.
Pennsylvania is different
A few states, Pennsylvania among them, tax 401(k) contributions as wages, so you get the federal saving but not a state saving. The Pennsylvania calculator reflects this.
Try the take-home pay calculator to see your own numbers, or pick your state from the state list.