How a 401(k) Contribution Changes Your Take-Home Pay

See how much a traditional 401(k) contribution reduces your paycheck, and why it costs less than you think.

A traditional 401(k) contribution is taken out before federal income tax, so each dollar you save reduces your paycheck by less than a dollar. The tax you avoid partly offsets the contribution.

An example

Suppose you earn $60,000 and contribute 6%, or $3,600 a year. Your taxable income falls from $60,000 to $56,400 before the deduction. If you are in the 12% federal bracket, that is about $430 less federal tax. So the contribution costs you roughly $3,170 in take-home pay instead of $3,600, and about $120 per biweekly paycheck rather than $138.

Note that Social Security and Medicare are still calculated on your full pay, so a 401(k) does not reduce those taxes.

Employer match

Many employers match part of your contribution. A common arrangement is matching 50% of contributions up to 6% of pay. That match is extra compensation, so contributing at least enough to get the full match is usually worthwhile.

Traditional vs Roth

A Roth 401(k) is taxed now but grows tax-free, so it does not lower this year's paycheck tax. A traditional 401(k) lowers tax now and is taxed when you withdraw in retirement. Which is better depends on whether you expect a higher or lower tax rate later.

Try it yourself

Enter your pay in the paycheck calculator and change the 401(k) percentage to compare your take-home pay.

Updated October 2026. For information only, not tax advice.