Contributing to a traditional 401(k) costs you less than you think, because it lowers your taxable income. See the real hit to your paycheck.
Add this free 401(k) paycheck impact calculator to your own website — just copy and paste the code below.
Traditional 401(k) contributions come out of your pay before federal and state income tax. Putting in $200 a paycheck does not reduce your take-home by $200 — it reduces it by $200 minus the tax you no longer owe on that money. In a 22% federal bracket with state tax, the real cost is often closer to $150.
One important detail: 401(k) contributions do not reduce Social Security and Medicare (FICA) taxes. Those are still calculated on your full gross pay, which this calculator accounts for.
This calculator models a traditional 401(k), where you get the tax break now and pay income tax on withdrawals in retirement. A Roth 401(k) is the reverse: contributions come out of after-tax pay, so your paycheck drops by the full amount, but qualified withdrawals in retirement are tax free.
How much will a 401(k) reduce my paycheck?
Less than the amount you contribute. Because contributions are pre-tax for income tax purposes, a $500 monthly contribution might reduce take-home pay by only $370–$400 depending on your bracket and state.
Does a 401(k) reduce Social Security and Medicare taxes?
No. FICA taxes apply to your full gross wages regardless of traditional 401(k) contributions. Only federal and state income tax are reduced.
How much should I contribute to my 401(k)?
A common starting point is contributing at least enough to receive your full employer match, since that match is additional compensation you are otherwise not paid. Many financial planners suggest working toward 10–15% of income including the match, but the right amount depends on your circumstances.
Is there a limit on 401(k) contributions?
Yes. The IRS sets an annual employee deferral limit, with an additional catch-up amount for those aged 50 and over. Limits are adjusted each year, so check the current figures on IRS.gov or with your plan administrator.