How 401(k) Contributions Change Your Take-Home Pay
Updated for tax year 2026 · 6 min read
What a traditional 401(k) skips (and what it doesn't)
Traditional 401(k) deferrals come out of your pay before federal income tax and, in every state except Pennsylvania, before state income tax. They do not escape FICA: Social Security and Medicare are computed on your gross wages regardless. That single asymmetry explains every number in this guide.
The deferral limit for 2026 is $24,500 (plus catch-up contributions at 50 and older). Employer matching does not count against your employee limit.
Contribution rate vs. paycheck at $80,000 (2026, single, Illinois)
| 401(k) rate | Saved per year | Annual take-home | Paycheck cost | Cost per $1 saved |
|---|---|---|---|---|
| 0% | $0 | $61,295 | — | — |
| 4% | $3,200 | $58,957 | −$2,338 | 73¢ |
| 6% | $4,800 | $57,788 | −$3,506 | 73¢ |
| 10% | $8,000 | $55,451 | −$5,844 | 73¢ |
| 15% | $12,000 | $52,529 | −$8,766 | 73¢ |
The "cost per $1 saved" column is the headline: at this income the government effectively co-funds roughly a quarter of every contribution through deferred tax. The discount equals your combined marginal rate, so it grows as your income (and bracket) rises.
Match first, then think
If your employer matches contributions (say, 50% of the first 6%), the match is an instant, guaranteed return that no other use of the money beats. In the table above, a 6% contribution costing $3,506 of take-home would also trigger $2,400 of free employer money under a 50%-of-6% match: you give up $3,506 of spending today and $7,200 lands in your account.
Beyond the match, the traditional-vs-Roth question is really a bet on whether your tax rate today is higher than it will be in retirement. Roth 401(k) contributions get no deduction now (they reduce take-home dollar-for-dollar) but withdraw tax-free later.
Run it for your own numbers
The paycheck calculator has a 401(k) field: set your salary, state, and contribution percentage and it shows the per-paycheck cost next to the annual amount saved. Comparing 0% against your target rate reproduces this table for your exact situation, including your state's treatment.
401(k) and paycheck FAQ
What is the 401(k) contribution limit for 2026?+
$24,500 in employee deferrals, per IRS inflation adjustments. Workers 50+ can add a catch-up contribution on top, and employer matches don't count against the employee limit.
Does contributing to a 401(k) reduce Social Security and Medicare tax?+
No. FICA applies to gross wages before 401(k) deferrals. It also means deferrals don't reduce the earnings that determine your future Social Security benefit.
Why is Pennsylvania different?+
Pennsylvania is the one state that taxes 401(k) contributions on the way in. The flip side: it doesn't tax the withdrawals in retirement, so Pennsylvania savers get the break at the end instead of the start.
Traditional or Roth 401(k)?+
Rule of thumb: traditional if you expect a lower tax rate in retirement than today (most people), Roth if you're early-career in a low bracket or expect higher rates later. Many savers split contributions to hedge.