Why a traditional 401(k) costs less than it looks
A traditional 401(k) contribution comes out of your paycheck before income tax. Your taxable wages drop by the contribution, so your federal (and usually state) income tax drops too. Your take-home pay falls by the contribution minus that tax saving. A Roth 401(k) contribution comes out after tax, so take-home falls by the full amount — the tax break comes later, when qualified withdrawals are tax-free.
Worked example: 6% of $65,000
| Per biweekly paycheck | No 401(k) | Traditional 6% | Roth 6% |
|---|---|---|---|
| Contribution | $0.00 | $150.00 | $150.00 |
| Federal income tax | $216.15 | $198.15 | $216.15 |
| Social Security & Medicare | $191.25 | $191.25 | $191.25 |
| Take-home pay | $2,092.60 | $1,960.60 | $1,942.60 |
The traditional contribution saves $18.00 of federal income tax per paycheck, so each dollar saved costs $0.88 of take-home — at a 12% federal bracket. Single filer, no state income tax; with a state income tax the saving is larger in most states.
Take-home cost at different contribution rates ($65,000, traditional)
| Contribution | Saved per year | Take-home cost per year | Cost per paycheck |
|---|---|---|---|
| 3% | $1,950 | $1,716 | $66.00 |
| 6% | $3,900 | $3,432 | $132.00 |
| 10% | $6,500 | $5,720 | $220.00 |
| 15% | $9,750 | $8,580 | $330.00 |
How your state changes the math
The same 6% contribution on $65,000 costs a different amount of take-home in different states, because most state income taxes also exclude traditional 401(k) deferrals. Single filer, biweekly, from the same engine:
| State | Saved per year | State tax saved | Take-home cost per year | Cost per $1 saved |
|---|---|---|---|---|
| California | $3,900 | $234 | $3,198 | $0.82 |
| Alaska | $3,900 | $0 | $3,432 | $0.88 |
| Arizona | $3,900 | $98 | $3,335 | $0.86 |
In a state with no wage tax, the only saving is federal.
2026 contribution limits
| Age at year-end | Employee elective deferral limit |
|---|---|
| Under 50 | $24,500 |
| 50–59 and 64+ | $32,500 |
| 60–63 | $35,750 |
The limit covers traditional and Roth contributions combined; the calculator caps your contribution at it. Starting in 2026, employees whose prior-year wages from the employer exceeded an IRS-set threshold must make catch-up contributions as Roth — that rule is not modeled here.
Traditional or Roth?
- Traditional is attractive if your tax rate today is higher than you expect in retirement, or if the lower take-home cost lets you save more.
- Roth is attractive if you expect a higher rate later, are early in your career, or want tax-free income in retirement.
- Both: splitting between the two hedges against uncertainty about future tax rates.
State tax matters too: most states exclude traditional 401(k) contributions from state taxable wages, but a few start from their own income definition and do not. When a state’s data says so, the calculator follows it.
401(k) vs Section 125 benefits
Pre-tax health premiums, a health FSA and HSA contributions made through payroll (Section 125, or “cafeteria plan,” deductions) go one step further than a traditional 401(k): they are excluded from Social Security and Medicare wages too. That means a dollar into an HSA through payroll reduces your take-home by less than a dollar into a traditional 401(k). The paycheck calculator lets you enter both and shows the difference line by line.
Hitting the limit early
If you contribute a high percentage or receive a large bonus, you may reach the annual limit before December. Contributions then stop, and your take-home rises for the rest of the year. Some plans only match contributions made each pay period, so maxing out early can cost part of the match unless your plan has a year-end “true-up.” Spreading contributions across all paychecks avoids that.
The employer match
A common formula is “50% of your contributions up to 6% of pay.” On $65,000, contributing 6% ($3,900) earns a $1,950 match. The match never shows up in your paycheck — it goes straight to your account — but skipping it leaves money on the table. Matches may vest over several years.
These are estimates; your plan documents and payroll department have the final word on limits, match formulas and timing.