Why a 401(k) costs less than it looks
Money you put into a traditional 401(k) comes out of your pay before federal and state income tax. A $100 contribution in the 22% bracket with a 5% state tax lowers your take-home pay by only $73. Add an employer match and each dollar you give up can put well over a dollar into your account. This calculator shows the contribution, the match, the tax saved and the real cost per paycheck, within the 2026 limits.
2026 contribution limits
- Employee deferrals: $24,500.
- Catch-up at age 50 and over: $8,000 more, for a total of $32,500.
- Ages 60 to 63: a larger catch-up of $11,250, for a total of $35,750.
- Total with employer contributions: $72,000, not counting catch-ups.
From 2026, employees who earned more than $145,000 of FICA wages from the employer in the prior year (indexed, about $150,000 for 2025 wages) must make catch-up contributions as Roth.
The formulas
- Contribution = salary × your percentage, capped at your limit.
- Match = salary × min(your percentage, match cap) × match rate.
- Tax saved now (traditional only) = contribution × (federal bracket + state rate).
- Real cost = contribution − tax saved.
Worked example: $85,000 salary, 10% contribution
The employer matches 50% of contributions up to 6% of pay.
- Contribution: 10% × 85,000 = $8,500, well under the $24,500 limit.
- Match: 6% × 85,000 × 50% = $2,550.
- Tax saved at 22% federal and 5% state: 8,500 × 27% = $2,295.
- Real cost: $6,205 a year, about $239 per biweekly paycheck.
- $11,050 goes into the account for $6,205 of take-home pay: $1.78 per dollar.
By contribution rate
| Contribution | You put in | Match | Tax saved | Real cost |
|---|---|---|---|---|
| 3% | $2,550 | $1,275 | $689 | $1,862 |
| 6% | $5,100 | $2,550 | $1,377 | $3,723 |
| 10% | $8,500 | $2,550 | $2,295 | $6,205 |
| 15% | $12,750 | $2,550 | $3,443 | $9,308 |
Traditional or Roth?
A traditional contribution saves tax now; withdrawals in retirement are taxed as income. A Roth contribution gives no deduction today, but qualified withdrawals after age 59 1/2, from an account held at least five years, are tax-free. Roth tends to win when you expect a higher tax rate in retirement, for example early in your career; traditional tends to win in your peak earning years. Employer matches go into the traditional side unless your plan allows Roth matching.
Rules worth knowing
- Always collect the full match. It is an immediate return on your money; contributing below the match cap leaves part of your pay unclaimed.
- Vesting. Your own contributions are always yours; the match may vest over several years.
- Early withdrawals before 59 1/2 usually cost income tax plus a 10% penalty, with exceptions.
- Required minimum distributions start at 73 (75 for people born in 1960 or later) for traditional balances.