Contributing more to your 401(k) lowers your paycheck by less than you'd think.
Updated October 2026 with the 2026 contribution limits.
Raising your 401(k) contribution feels like it should shrink your paycheck by the same amount. It doesn't. Because a traditional contribution comes out before income tax is calculated, part of the cost is covered by the tax you no longer pay.
A traditional (pre-tax) 401(k) contribution is subtracted from your pay before federal income tax is figured, and before state income tax in almost every state. The contribution leaves your take-home pay, but it also reduces the income you are taxed on, so your tax withholding falls at the same time.
The saving depends on your tax bracket. In the 12% federal bracket, every $100 you contribute costs about $88 of take-home pay. In the 22% bracket it costs about $78. State income tax savings come on top of that.
The table shows a single filer paid every two weeks in a state with no income tax, using 2026 federal tax tables.
| Salary | Contribution rate | Goes into 401(k) per paycheck | Take-home drops by |
|---|---|---|---|
| $60,000 | 3% | $69.23 | $60.92 |
| $60,000 | 6% | $138.46 | $121.85 |
| $60,000 | 10% | $230.77 | $203.08 |
| $90,000 | 3% | $103.85 | $81.00 |
| $90,000 | 6% | $207.69 | $162.00 |
| $90,000 | 10% | $346.15 | $270.00 |
At $60,000 the saver is in the 12% bracket, so $138.46 of saving costs $121.85. At $90,000 the 22% bracket applies, and $207.69 of saving costs $162.00. You can run your own numbers with the 401(k) field in the paycheck calculator.
Social Security and Medicare taxes are still charged on the full amount. A 401(k) contribution lowers your income tax, not your FICA taxes, which is why the wages in Box 1 of your W-2 are lower than the wages in Boxes 3 and 5.
A few states also tax contributions. Pennsylvania is the best-known example: it applies its 3.07% income tax to money you put into a 401(k), though it does not tax qualifying withdrawals in retirement.
A Roth 401(k) contribution comes out after tax is calculated, so it reduces your take-home pay dollar for dollar today. The trade-off is that qualified withdrawals in retirement, including all the growth, are tax-free, while a traditional 401(k) is taxed when you withdraw it.
A rough guide: traditional contributions are worth more if you expect to be in a lower tax bracket in retirement than you are now, and Roth contributions are worth more if you expect to be in a higher one. Many people split their contributions because the future is hard to predict.
| Limit | 2026 amount |
|---|---|
| Employee contributions, traditional and Roth combined | $24,500 |
| Extra catch-up contribution, age 50 and older | $8,000 |
| Extra catch-up contribution, ages 60 to 63 (replaces the $8,000) | $11,250 |
| Employee and employer contributions combined | $72,000 |
So an employee who is 50 or older can put in up to $32,500 in 2026 ($24,500 plus the $8,000 catch-up), and one who is 60 to 63 can put in up to $35,750 ($24,500 plus $11,250).
One rule is new for 2026. If your Social Security wages from your current employer were more than $150,000 in the previous year, your catch-up contributions must go in as Roth contributions.
A match is part of your pay that you only receive if you contribute. With a common formula of 50 cents on the dollar up to 6% of pay, a person earning $60,000 who contributes 6% ($3,600) gets another $1,800 from the employer. The match never appears as a deduction on your stub, and it does not count toward your $24,500 limit.
Contributing at least enough to capture the full match is usually the first savings step worth taking. Check your plan's vesting schedule too, because some employers require a few years of service before the match is fully yours.
You change your contribution through your plan's website or your HR department, not on your W-4. Most plans let you change it at any time, and the new rate usually takes effect within one or two pay periods.
Sources: IRS, 401(k) contribution limits; IRS, Roth comparison chart.