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Open the Retirement Savings Calculator →Many people avoid contributing to their 401(k) because they assume it will hurt their take-home pay by the full contribution amount. In reality, pre-tax 401(k) contributions cost you significantly less than you think — because they reduce your taxable income first.
A traditional 401(k) contribution is deducted from your gross salary before income tax is calculated. This means you pay less income tax immediately. The government is effectively subsidising your retirement savings at your marginal tax rate.
If you are in the 22% federal tax bracket, every $100 you contribute to your 401(k) only costs you $78 in take-home pay. The other $22 comes from tax you would have paid anyway.
| Monthly Contribution | Tax Bracket | Actual Reduction in Take-Home Pay |
|---|---|---|
| $200/month | 22% | ~$156/month |
| $500/month | 22% | ~$390/month |
| $500/month | 24% | ~$380/month |
| $1,000/month | 22% | ~$780/month |
| $1,917/month (max 2024) | 24% | ~$1,457/month |
Many employers now offer both traditional (pre-tax) and Roth 401(k) options:
A common strategy is to use traditional contributions when in higher brackets (32%+) and Roth when in lower brackets (22% or below). Many advisors suggest splitting contributions between both to hedge against future tax rate uncertainty.
If your employer matches contributions — say, 3% of salary matched dollar-for-dollar — this is an instant 100% return on that portion. No investment can consistently beat that. Always contribute at least enough to capture the full employer match. For a $70,000 salary with a 3% match, that is $2,100/year of free money.
Enter your salary, filing status, state, and 401(k) contribution percentage to see your precise take-home pay after all deductions.
Calculate My Take-Home Pay →Contributing an extra $300/month to your 401(k) over 30 years at a 7% return grows to approximately $340,000. The cost to your monthly take-home pay is only ~$234 (at 22% bracket). The trade-off of $234/month today for $340,000 at retirement is one of the most compelling financial decisions available to US employees.