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How a 401(k) Changes Your Take-Home Pay
The most underrated fact in personal finance: a traditional 401(k) contribution costs you less than its face value, because it comes out before income tax. Here is the actual math for 2026, run through our paycheck engine.
Worked example: $80,000 salary in Illinois
| Contribution | Saved into 401(k) | Annual take-home | Total tax paid |
| 0% | $0 | $61,150 | $18,850 |
| 6% | $4,800 | $57,644 | $17,556 |
| 10% | $8,000 | $55,306 | $16,694 |
Look at the 6% row: $4,800 goes into the retirement account, but take-home only drops by $3,506. The missing $1,294 is income tax you simply didn't pay this year — the government effectively co-funds your savings. At 10%, the effect scales up proportionally.
Three rules that fall out of the math
- Always capture the employer match first. A typical 50% match on the first 6% is an instant, risk-free return no investment can beat — and as the table shows, that 6% costs you less than 6% of your pay.
- FICA still applies. 401(k) contributions skip income tax but not Social Security or Medicare — which is why take-home doesn't drop by exactly the contribution minus income tax. Our engine models this correctly.
- Your state changes the answer. In a high-tax state like California the discount is bigger; in Texas or Florida (no income tax) only the federal saving applies, which tilts the Roth-vs-traditional decision. Try your own numbers in your state's calculator — it has a 401(k) field built in.
Sources and methodology
Figures computed with the PaycheckTally 2026 engine (federal brackets, standard deduction, FICA, and verified Illinois flat tax). The 2026 IRS employee deferral limit and catch-up rules are published by the IRS. Estimates only — not investment advice.