What does your 401(k) actually cost you?

By Reba Donaldson · Last reviewed: April 2026 · Educational guidance, not tax advice

Your 401(k) reduces your take-home pay — but not by as much as you think. Here's why, with real numbers.

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The short answer
A real example
Why this matters
The free-money part: employer match
What this calculator shows you
Common questions

The short answer

Most people think contributing $300 to their 401(k) shrinks their paycheck by $300.

It doesn't. It shrinks by less, because 401(k) money comes out of your pay before federal income tax is calculated. Less taxable pay means less tax.

That tax savings is real money. You move $300 into retirement, but your paycheck only drops by, say, $234. The other $66 was tax you would have paid anyway. Now it's still in your pocket — just sitting in your retirement account instead of your bank account.

How big the tax savings is depends on your tax bracket. Higher brackets save more per dollar.

A real example

Let's say you earn $80,000 a year and you're single. You're paid every two weeks (biweekly), so 26 paychecks per year.

If you don't contribute to your 401(k), you take home about $2,504 per paycheck.

Now you decide to contribute $300 per paycheck to your 401(k). Your take-home pay drops to $2,270 per paycheck.

Your paycheck shrunk by $234, not $300. That's because contributing $300 to 401(k) saved you $66 in federal income tax per paycheck.

Here's the breakdown:

$300 going to retirement
$234 less in your paycheck
$66 less in federal tax (because that $300 isn't taxed yet)

You're saving $300 for retirement, but it's only "costing" you $234 in spendable pay. Over a year, that's $7,800 going into retirement and only $6,084 coming out of your paychecks. The IRS chips in the other $1,716.

That's a 22% effective bonus on your retirement contribution — which happens to be your federal tax bracket. The math works out to your bracket every time, because the brackets are the savings.

Want to see your numbers? The Paycheck Calculator has an Optimize 401(k) mode with a slider — drag it and see what each level actually costs you.

Why this matters

The 22% bonus in the example above isn't a fixed thing. It changes with your income.

If you're in the 12% bracket (single, taxable income up to about $50,400 in 2026), every $100 you contribute to your 401(k) saves you about $12 in federal tax. So a $100 contribution costs you $88 in take-home.

If you're in the 24% bracket (single, taxable income roughly $105,700 to $201,775), the same $100 contribution saves you $24. Costs you $76 in take-home.

If you're in the 32% bracket or higher, the savings climbs further. This is one big reason high earners can "afford" to max out their 401(k) — the tax shield is bigger up there.

It's also one reason financial advisors push 401(k) contributions hard. The tax savings is automatic. You don't have to do anything clever; the IRS just takes less out of your paycheck.

The free-money part: employer match

If your employer offers a 401(k) match, that's straight extra pay you're leaving on the table if you don't contribute enough to get it.

A common match looks like: "100% of the first 3%, 50% of the next 2%." That means if you make $80,000 and contribute 5% of your pay ($4,000), your employer kicks in another 4% ($3,200) on top. That $3,200 doesn't come out of your paycheck — it's added to your 401(k) by your employer, alongside what you put in.

The match doesn't show up in our calculator because it doesn't affect your take-home. But if you're not contributing enough to get the full match, you're declining free money — and the math says the first dollars into a 401(k) are by far the highest-return dollars you'll ever invest.

Two practical rules of thumb most planners agree on:

Contribute at least enough to get your full employer match. Always.
If you have high-interest credit card debt, pay that down before contributing more than the match. After that, more 401(k) is usually the right call.

What this calculator shows you

Plug in your salary, pay frequency, filing status, and any pretax stuff coming out of your paycheck. We show you:

Your gross paycheck — what your employer pays you before anything comes out.
Federal income tax — how much the IRS takes, with your 401(k) factored in.
Social Security and Medicare (FICA) — these don't get a 401(k) discount. Worth knowing.
HSA and pre-tax health insurance — if you have them, they reduce both federal income tax and FICA.
Your take-home pay — what hits your bank account, per paycheck and per year.

And then there's the magic part — Optimize mode. After you see your current take-home, you can drag a slider from $0 to $1,500 per paycheck of 401(k) contribution. The result section live-updates: take-home shrinks, tax savings grows, retirement contribution grows, and we show you the effective bonus percentage so you can see your bracket at work.

Calculate your real take-home with 401(k) →

Common questions

Does my 401(k) reduce Social Security and Medicare taxes too?

No. 401(k) contributions are pretax for federal income tax only. Social Security (6.2%) and Medicare (1.45%) come out of your full gross pay no matter what. HSA and pre-tax health insurance, on the other hand, reduce both federal income tax and FICA — so per dollar, those save you more than a 401(k) does.

What if I contribute to a Roth 401(k) instead?

Different deal. Roth 401(k) contributions are after-tax, so they don't reduce your federal income tax now. Your take-home drops by the full $300 if you contribute $300. The trade-off: when you withdraw the money in retirement, you don't pay tax on it — including any growth. Whether traditional or Roth is better depends on your tax bracket now versus the bracket you expect in retirement. This calculator covers traditional 401(k) only.

How much should I contribute?

We can't tell you that. It depends on your goals, your employer match, your other debts, and your overall picture. What we can tell you is what each level actually costs in take-home — drag the slider and see. A common starting rule of thumb: contribute at least enough to get the full employer match. After that, it's a personal choice.

Is there a yearly limit?

Yes. The IRS sets a yearly cap on 401(k) contributions ($23,500 in 2025; the 2026 cap is set each fall and is usually a small bump up). If you're over 50, there's a catch-up amount on top. Our slider goes up to $1,500 per paycheck, which is more than enough to hit the yearly cap on biweekly pay.

What about my employer's match?

Employer match goes straight into your 401(k) — it doesn't show up on your paycheck or get taxed in your check. Our calculator shows what comes out of your pay; whatever your employer adds is on top of that.

One more thing

If you're going to change your 401(k) contribution, you might also want to tune your W-4. Your withholding is set up to match your taxable income — and your taxable income just changed. A bigger 401(k) means less federal tax owed, which means you can dial back what your employer takes out.

The W-4 Easy Guide walks you through it. Fifteen minutes once a year keeps your refund (or what you owe) close to zero.

Open the calculator →