Contributing to a traditional 401(k) is one of the most powerful tax moves available to W-2 employees. Here is exactly how much it saves you — with real numbers for 2026.
How a 401(k) Reduces Your Taxes
A Traditional 401(k) contribution comes out of your paycheck before federal and state income taxes are applied. This reduces your "taxable income" dollar-for-dollar, so you only pay income taxes on the amount left over.
FICA taxes (Social Security and Medicare) are not reduced by 401(k) contributions — only income taxes are affected.
Real Savings at $75,000 Salary (California, Single)
| 401(k) Contribution | Taxable Income | Federal Tax Saved | Total Tax Saved* |
|---|---|---|---|
| $5,000 | $70,000 | ~$1,100 | ~$1,420 |
| $10,000 | $65,000 | ~$2,200 | ~$2,840 |
| $15,000 | $60,000 | ~$3,300 | ~$4,260 |
| $24,500 | $50,500 | ~$5,390 | ~$6,960 |
*Includes federal + California state income tax savings. FICA not reduced.
2026 Contribution Limits
Traditional 401(k) vs Roth 401(k)
Traditional: Contributions are pre-tax. You pay taxes when you withdraw in retirement. Best if you expect to be in a lower tax bracket in retirement.
Roth: Contributions are post-tax (no tax break today). Withdrawals in retirement are completely tax-free — including all growth. Best if you expect to be in a higher bracket in retirement, or if you're early in your career.
Use the calculator to see your take-home pay with and without 401(k) contributions.
Model My 401(k) Savings →