A traditional 401k contribution lowers your paycheck by less than you put in, because the money leaves before income tax is calculated. On a $75,000 salary in Texas, contributing 10% sends $288 to your retirement account every two weeks, yet your take-home pay drops by only $225. The gap, about $63 per paycheck, is federal income tax you no longer pay.
What a 401k contribution does to one paycheck
Here is a $75,000 salary paid biweekly (26 paychecks) in Texas, which has no state income tax:
| Contribution | Per year | Take-home per paycheck | Paycheck drop | Tax saved per year |
|---|---|---|---|---|
| 0% | $0 | $2,369 | – | – |
| 5% | $3,750 | $2,256 | $113 | $825 |
| 10% | $7,500 | $2,144 | $225 | $1,650 |
| 15% | $11,250 | $2,021 | $348 | $2,200 |
At a 5% rate, each dollar invested costs you only 78 cents of take-home pay at this income, because the last dollars of salary are taxed in the 22% federal bracket.
The real cost at different salaries
The higher your marginal tax rate, the cheaper each dollar of 401k contribution becomes. The last column shows how much take-home pay you give up for every dollar that lands in your account:
| Salary | Contribution | Saved per paycheck | Paycheck drop | Tax saved per paycheck | Cost per $1 saved |
|---|---|---|---|---|---|
| $50,000 | 5% | $96 | $85 | $12 | 88 cents |
| $50,000 | 10% | $192 | $169 | $23 | 88 cents |
| $50,000 | 15% | $288 | $254 | $35 | 88 cents |
| $100,000 | 5% | $192 | $150 | $42 | 78 cents |
| $100,000 | 10% | $385 | $300 | $85 | 78 cents |
| $100,000 | 15% | $577 | $450 | $127 | 78 cents |
| $150,000 | 5% | $288 | $219 | $69 | 76 cents |
| $150,000 | 10% | $577 | $438 | $138 | 76 cents |
| $150,000 | 15% | $865 | $658 | $208 | 76 cents |
Biweekly pay, Texas, single filer. At $50,000 most of the deferral comes out of the 12% bracket; at $150,000 it comes out of the 24% bracket, so the same percentage hurts your paycheck less.
State income tax makes the saving bigger
In a state with income tax, a pre-tax 401k contribution also lowers your state bill. Here is a 10% contribution on $75,000:
| State | Paycheck with 0% | Paycheck with 10% | Total tax saved per year |
|---|---|---|---|
| Texas | $2,369 | $2,144 | $1,650 |
| California | $2,225 | $2,023 | $2,250 |
| New York | $2,222 | $2,013 | $2,055 |
| Illinois | $2,232 | $2,021 | $2,021 |
| Georgia | $2,254 | $2,043 | $2,024 |
Not every state follows the federal rule. Pennsylvania, for example, taxes 401k deferrals as wages, so the state saving does not apply there.
What the 401k contribution does not reduce
- Social Security and Medicare: FICA is charged on your full salary, contribution or not. See our FICA tax guide.
- Roth 401k: Roth money is taken after tax, so the paycheck drops by the full amount.
- Employer match: the match is added on top and never comes out of your take-home pay.
2026 contribution limits
According to the IRS announcement of the 2026 limits, you can defer up to $24,500 of salary into a 401k in 2026. Workers aged 50 and over can add an $8,000 catch-up, and those aged 60 to 63 get a higher catch-up of $11,250. A 15% rate stays under the limit up to a salary of about $163,000; above that, the plan stops your deferrals once you reach $24,500.
Worked example: 6% with an employer match
Take a sample plan that matches 50% of what you contribute, up to 6% of salary. On $75,000, a 6% 401k contribution is $4,500 a year and the employer adds $2,250. Your take-home pay falls by only $3,510 a year, or $135 per paycheck. In return, $6,750 goes into your account: about 1.92 dollars invested for every dollar your paycheck loses. Check your own plan documents, because match formulas and vesting rules vary.
Common mistakes
- Assuming a 10% rate cuts take-home pay by 10%. The drop is always smaller for a traditional 401k.
- Forgetting that health, dental and HSA deductions also come out of the same paycheck.
- Stopping contributions after a raise instead of increasing them.
- Leaving the match on the table to keep a slightly bigger check.
How to choose your 401k contribution rate
- Contribute at least enough to collect the full employer match: it is part of your pay.
- Check the paycheck drop, not the contribution amount, against your monthly budget.
- Raise the rate by 1% each time you get a raise, so your take-home pay never falls.
- Keep an emergency fund outside the plan, because early withdrawals are taxed and usually penalized.
A simple test: if a 10% rate feels impossible, start at the match and increase it every year. The worked figures above show that a 401k contribution is never as expensive as it looks on the enrollment form.
The takeaway
A pre-tax 401k contribution trades a smaller paycheck today for a much larger amount invested, with the tax saving covering the difference. Try your own rate in the salary after tax calculator or the Texas paycheck calculator.
Frequently asked questions
How much will a 10% 401k contribution reduce my paycheck?
On a $75,000 salary in Texas, a 10% contribution puts $288 into your account every two weeks but lowers your take-home pay by only $225.
Does a 401k contribution lower Social Security and Medicare tax?
No. Traditional 401k deferrals reduce federal and most state income tax, but Social Security and Medicare are still charged on your full salary.
What is the 401k contribution limit for 2026?
The IRS set the 2026 employee deferral limit at $24,500, with an extra $8,000 catch-up from age 50 and $11,250 for ages 60 to 63.
Is a Roth 401k contribution different?
Yes. Roth contributions come out after tax, so your paycheck falls by the full amount you contribute, but qualified withdrawals are tax-free later.
Estimates for information only, not tax advice.
