Every dollar you put in a traditional 401(k) comes off your taxable income, so it saves you your marginal tax rate: 12, 22 or 24 cents per dollar for most workers in 2026, plus state tax. A single filer earning $85,000 who contributes 10% ($8,500) saves about $2,295 ($1,870 federal + $425 state at 5%). Their take-home pay falls by only $6,205, not $8,500.
2026 401(k) Contribution Limits
| Limit (2026) | Amount | 2025 |
|---|---|---|
| Employee elective deferral (under 50) | $24,500 | $23,500 |
| Catch-up, age 50–59 and 64+ | +$8,000 | +$7,500 |
| "Super" catch-up, age 60–63 | +$11,250 | +$11,250 |
| Maximum you can defer at 60–63 | $35,750 | $34,750 |
| Total additions incl. employer money (415(c)) | $72,000 | $70,000 |
| IRA contribution limit | $7,500 | $7,000 |
The employee limit is per person, not per plan. If you change jobs mid-year, contributions to both 401(k)s count toward one $24,500 limit.
How 401(k) Tax Savings Are Calculated
A traditional 401(k) contribution is taken out of your paycheck before federal income tax is calculated. It is not a deduction you claim at filing; it simply never shows up in Box 1 of your W-2. The saving is the difference between the tax on your income with and without the contribution:
- Start with salary plus any other income, minus the 2026 standard deduction ($16,100 single, $32,200 married filing jointly, $24,150 head of household).
- Run that taxable income through the 2026 brackets.
- Subtract the contribution and run the brackets again.
- The difference is your federal saving. Add state tax at your state rate.
This is why the saving isn't always your "bracket × contribution". If a big contribution pushes part of your income down into a lower bracket, the dollars below the bracket line only save the lower rate. The calculator above flags when this happens.
2026 Federal Tax Savings by Income
Federal income tax saved by a traditional 401(k) contribution, 2026 brackets and standard deduction, no other income:
| Single filer salary | $5,000 in | $10,000 in | $24,500 (max) |
|---|---|---|---|
| $50,000 | $600 | $1,200 | $2,880 |
| $75,000 | $1,100 | $2,050 | $3,790 |
| $100,000 | $1,100 | $2,200 | $5,390 |
| $150,000 | $1,200 | $2,400 | $5,880 |
| $250,000 | $1,600 | $3,200 | $7,840 |
| Married filing jointly, household wages | $5,000 in | $10,000 in | $24,500 in |
|---|---|---|---|
| $75,000 | $600 | $1,200 | $2,810 |
| $100,000 | $600 | $1,200 | $2,940 |
| $150,000 | $1,100 | $2,200 | $4,640 |
| $250,000 | $1,200 | $2,328 | $5,518 |
Add your state rate × contribution for the total. For example, $10,000 at a 5% state rate adds another $500.
Worked Example: $85,000 Salary, 10% Contribution
Jordan is single, earns $85,000, lives in a state with a 5% income tax, and is paid every two weeks. The employer matches 50% of the first 6% of pay.
| Step | Amount |
|---|---|
| Contribution (10% of $85,000) | $8,500 |
| Taxable income without 401(k): $85,000 − $16,100 | $68,900 |
| Federal tax on $68,900 | $9,870 |
| Taxable income with 401(k): $68,900 − $8,500 | $60,400 |
| Federal tax on $60,400 | $8,000 |
| Federal saving | $1,870 |
| State saving (5% × $8,500) | $425 |
| Total tax saved | $2,295 |
| Employer match (50% × 6% × $85,000) | $2,550 |
| Added to retirement for a take-home cost of | $11,050 for $6,205 |
Per paycheck, $327 goes into the 401(k), but take-home pay falls by only about $239. Every $1 of reduced take-home pay turns into roughly $1.78 of retirement savings once the tax saving and match are counted.
Traditional vs. Roth 401(k): Which Saves More?
A Roth 401(k) has the same limits but no upfront deduction; qualified withdrawals are tax-free instead. The choice comes down to one question: is your tax rate higher now or in retirement?
- Traditional usually wins if you're in the 22% bracket or above and expect a lower income in retirement, or if the deduction keeps you under an income limit (Saver's Credit, IRA deduction phase-outs, student-loan repayment formulas).
- Roth usually wins if you're early in your career in the 10–12% bracket, expect higher income later, or want tax-free money that won't raise your taxable income (and Medicare premiums) in retirement.
- Splitting between both gives you flexibility to manage your tax bracket in retirement.
Our Roth vs. Traditional calculator compares both paths with your own tax rates.
What Changed for 401(k)s in 2026
- Higher limits: $24,500 base (+$1,000) and $8,000 catch-up (+$500).
- Mandatory Roth catch-up for high earners: if your prior-year wages from the employer exceeded $150,000, catch-up contributions must be made as Roth. Your base $24,500 can still be traditional.
- Wider brackets: the 12% bracket now runs to $50,400 of taxable income for single filers (was $48,475) and the standard deduction is $16,100. Some incomes that sat in the 22% bracket in 2025 are now taxed at 12%, so each dollar contributed saves a little less there.
- Saver's Credit limits rose to $40,250 AGI (single), $60,375 (head of household) and $80,500 (joint). Because 401(k) contributions lower your AGI, contributing can make you eligible.
Five Costly 401(k) Mistakes
- Not contributing enough to get the full match. An unclaimed match is a 50–100% instant return you lose for good.
- Maxing out early without a "true-up". If you hit $24,500 by August and your plan matches per paycheck, you lose the match for the rest of the year unless the plan has a true-up provision.
- Over-contributing across two jobs. Excess deferrals must be withdrawn by April 15 or they're taxed twice.
- Cashing out when you change jobs. Before 59½ you pay income tax plus a 10% penalty, and your bank withholds 20% on the way out. Roll it over instead.
- Forgetting the catch-up at 50 (and the bigger one at 60–63). Enrolment is rarely automatic; update your election in January.
Related Tools & Guides
Frequently Asked Questions
Your federal saving equals the tax on your income with and without the contribution. For most people it's 12%, 22% or 24% of the amount contributed, plus your state rate. $10,000 in the 22% bracket with a 5% state tax saves about $2,700.
$24,500 for employee contributions. Workers aged 50–59 or 64+ can add $8,000 (total $32,500), and those aged 60–63 can add $11,250 (total $35,750). Combined employee and employer contributions are capped at $72,000.
No. Traditional and Roth 401(k) deferrals are still subject to FICA: 6.2% Social Security (up to the wage base) and 1.45% Medicare. Only federal income tax, and in most states state income tax, are reduced.
It lowers your taxable income, which can move some of your income into a lower bracket. For example, a single filer with $60,000 of taxable income who contributes $10,000 moves from the 22% bracket to the 12% bracket for part of that income.
Traditional saves tax now; Roth saves tax later. If you expect your tax rate in retirement to be lower than today's, traditional is usually better; if higher, Roth. Many people split contributions between both.
Yes. The limits are separate: $24,500 for the 401(k) and $7,500 for an IRA in 2026. If you're covered by a workplace plan, deducting a traditional IRA contribution phases out between $81,000 and $91,000 of modified AGI for single filers ($129,000–$149,000 for joint filers).
Tell your plan(s) and have the excess plus earnings returned by April 15 of the next year. The excess is taxable in the year contributed; if it isn't removed on time, it's taxed again when eventually withdrawn.
Federal savings use 2026 brackets and the standard deduction only; itemized deductions, credits, the senior deduction and the AMT are not modelled. State savings use a flat rate you enter; real state brackets and rules vary. Matching formulas, vesting and true-ups depend on your plan document.