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LearnFAQRetirement Planning

Does my 401(k) contribution reduce my taxable income for the year?

Answer

Traditional (pre-tax) 401(k) deferrals reduce your federal taxable wages dollar for dollar, lowering the income tax you owe this year. If you defer $10,000 pre-tax and are in the 24% bracket, you save roughly $2,400 in federal tax now. This reduction shows up because the deferral is excluded from Box 1 wages on your W-2.

Roth 401(k) deferrals do not reduce current taxable income, since they are made with after-tax dollars, but they grow and withdraw tax-free later. Note that pre-tax deferrals do not reduce the wages subject to Social Security and Medicare tax; those are still calculated on your gross pay. High earners often use pre-tax deferrals to drop below income thresholds for other tax benefits. Model the tradeoff with wealthserene.com/tools/roth-vs-traditional.

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Educational disclaimer: All content on WealthSerene.com is for educational purposes only and does not constitute investment advice. Projections and calculations are illustrative — actual results will vary based on market conditions, your specific situation, and many factors outside this tool’s scope. Always consult a qualified financial professional for advice specific to your situation. View full disclosures →