How much does a pre-tax 401k contribution actually cost me?

Less than the amount contributed, because the contribution comes out before income tax is calculated. At a combined 27 percent marginal rate, putting in $100 reduces take-home by only $73 — the other $27 was going to tax anyway. That is why raising a contribution rate hurts a paycheck far less than the percentage suggests.

Do pre-tax contributions reduce payroll tax too?

Generally no. Contributions to a traditional employer retirement plan reduce income tax but are still subject to Social Security and Medicare, which is why the saving is calculated at your income tax marginal rate rather than your total tax rate. Certain other pre-tax benefits do reduce payroll tax, which makes them proportionally more valuable.

Is a pre-tax contribution better than a Roth contribution?

It depends on whether your marginal rate now is higher or lower than the rate you expect in retirement. Pre-tax deducts now and taxes withdrawals later; Roth does the reverse. High earners in their peak years usually favour pre-tax; someone early in their career at a low rate often favours Roth. Nobody knows future rates, which is a decent argument for holding some of each.

How much of an employer match should I capture?

All of it, before anything else. An employer match is an immediate return on the money that no investment reliably matches — a dollar-for-dollar match is a 100 percent return the moment it lands, and even after netting out the tax saving the first-year return on your actual out-of-pocket cost is enormous. Contributing below the match threshold is leaving compensation unclaimed.

Does a pre-tax contribution lower my tax bracket?

It lowers your taxable income, which can move you below a bracket threshold if you were near one — and in that case the saving on the last portion is at the higher rate. More reliably, it reduces income for purposes of various phase-outs and thresholds, which can be worth more than the bracket effect itself.

Pre-Tax Contribution Calculator

See what a pre-tax retirement contribution actually costs your take-home pay after the tax saving, plus the employer match and what it compounds to.

By StatesideCalc EditorialLast verified July 27, 2026

Gross salary

Contribution rate

Percent of salary going in pre-tax.

Employer match

As a percent of salary. Match formulas vary — enter what you actually receive.

Federal marginal rate

State marginal rate

Contributing $8,800 costs you only $6,424 in take-home — about $0.73 per dollar saved. Add the $3,520 match and $12,320 lands in the account for $6,424 out of pocket.

What this calculator does

Salary, contribution rate, your federal and state marginal rates, pay periods, and the employer match go in. It returns the annual and per-paycheck contribution, the tax saved, what the contribution actually costs your take-home, the cost per dollar saved, the match, the total landing in the account, the first-year return on your real out-of-pocket cost, and what it compounds to over time.

The per-paycheck net cost is the number that changes behaviour, because it is the number people are actually deciding about.

The contribution costs less than it is

This is the entire point.

A pre-tax contribution comes out of gross pay before income tax is calculated. So the money that goes into the account includes money that was never going to reach your paycheck anyway.

At a 22 percent federal and 5 percent state marginal rate — 27 percent combined — contributing $100 reduces your take-home by $73. The other $27 was destined for tax.

Framed as a rate: contributing 10 percent of an $88,000 salary is $8,800 a year, or $338 per fortnightly paycheck. The actual reduction in take-home is $247. That is a meaningfully different decision from the one most people think they are making.

Marginal, not effective

The saving is computed at your marginal rate, and this is not a technicality.

A contribution reduces your income from the top down. The dollars it removes are your last dollars, taxed at your highest rate — not at your average rate across all income. Someone with a 13 percent effective federal rate and a 22 percent marginal rate saves at 22.

Which is also why pre-tax contributions are worth more the higher your bracket, and why the same advice does not apply equally to everyone. The effective tax rate calculator covers the distinction in detail.

Payroll tax is generally not reduced

Worth being precise about, because it is a common overstatement.

Contributions to a traditional employer retirement plan reduce income tax. They are generally still subject to Social Security and Medicare, which are withheld on gross pay before the retirement deferral.

So the correct rate to enter is your income tax marginal rate — federal plus state — not your total tax burden including payroll. The calculator is structured this way deliberately.

Some other pre-tax benefits do escape payroll tax, which makes them proportionally more valuable per dollar than a retirement deferral. Worth knowing when ranking where a limited amount of money should go.

The match is not an investment return

The employer match deserves separate treatment because it is categorically different from anything else in a portfolio.

A dollar-for-dollar match is an immediate 100 percent return on the money, before it is invested in anything. No asset class offers that. No market condition changes it. It is not a return at all in the ordinary sense — it is deferred compensation that you have to opt into.

Combine it with the tax saving and the arithmetic gets extreme. In the calculator’s default scenario, $8,800 of your money plus $3,520 of match means $12,320 lands in the account, and it cost you $6,424 in reduced take-home. That is a first-year return of over 90 percent on the cash you actually gave up.

Which is why “contribute at least enough to get the full match” is the closest thing to universal advice in personal finance. Below that threshold you are declining part of your compensation. The 401(k) match calculator works through match formulas in more detail, since they vary a great deal.

Deferred, not avoided

The honest counterweight to all of the above.

Pre-tax contributions defer tax. Withdrawals in retirement are taxed as ordinary income at whatever rate applies then. You have not escaped anything — you have moved the taxation to a different year.

That is usually favourable, for two reasons. Most people’s marginal rate falls in retirement, since they are no longer earning a salary. And the money compounds untaxed in the meantime, which is worth a great deal over decades.

But not always. Someone early in their career at a low marginal rate may well face a higher rate later, in which case a Roth contribution — taxed now, free later — is the better trade. And nobody knows what rates will be in thirty years, which is a respectable argument for holding some of each.

The Roth vs traditional calculator models that comparison directly.

Reading the compounding figure

The balance-after-N-years line assumes level annual contributions at a constant return. It is deliberately simple, and simple in a direction that understates: real contributions rise with salary over a career, which compounds harder than a flat contribution does.

It also ignores tax on withdrawal. Treat the number as the pre-tax account balance rather than as spendable money — the retirement drawdown calculator covers what that balance actually supports.

What this leaves out

Contribution limits, catch-up provisions and highly-compensated restrictions. Enter a rate your plan allows.
Vesting schedules on the employer match, which can be multi-year.
Deduction phase-outs for some account types at higher incomes.
Payroll tax, which is generally unaffected, as above.
Investment selection and fees, which over decades matter as much as the contribution rate.
Withdrawal rules, penalties before retirement age, and required minimum distributions.

For the match formula specifically, see the 401(k) match calculator.

How this is calculated

contribution = salary × contribution rate tax saved = contribution × (federal + state marginal rate) net paycheck cost = contribution − tax saved cost per dollar = net cost ÷ contribution total added = contribution + employer match

Frequently asked questions

How much does a pre-tax 401k contribution actually cost me?: Less than the amount contributed, because the contribution comes out before income tax is calculated. At a combined 27 percent marginal rate, putting in $100 reduces take-home by only $73 — the other $27 was going to tax anyway. That is why raising a contribution rate hurts a paycheck far less than the percentage suggests.
Do pre-tax contributions reduce payroll tax too?: Generally no. Contributions to a traditional employer retirement plan reduce income tax but are still subject to Social Security and Medicare, which is why the saving is calculated at your income tax marginal rate rather than your total tax rate. Certain other pre-tax benefits do reduce payroll tax, which makes them proportionally more valuable.
Is a pre-tax contribution better than a Roth contribution?: It depends on whether your marginal rate now is higher or lower than the rate you expect in retirement. Pre-tax deducts now and taxes withdrawals later; Roth does the reverse. High earners in their peak years usually favour pre-tax; someone early in their career at a low rate often favours Roth. Nobody knows future rates, which is a decent argument for holding some of each.
How much of an employer match should I capture?: All of it, before anything else. An employer match is an immediate return on the money that no investment reliably matches — a dollar-for-dollar match is a 100 percent return the moment it lands, and even after netting out the tax saving the first-year return on your actual out-of-pocket cost is enormous. Contributing below the match threshold is leaving compensation unclaimed.
Does a pre-tax contribution lower my tax bracket?: It lowers your taxable income, which can move you below a bracket threshold if you were near one — and in that case the saving on the last portion is at the higher rate. More reliably, it reduces income for purposes of various phase-outs and thresholds, which can be worth more than the bracket effect itself.