Does a 401(k) reduce taxable income?

Yes, a traditional 401(k) does. Contributions come out before federal income tax, so they lower the wages your employer withholds on. They do not lower Social Security or Medicare. A Roth 401(k) works the other way: it comes out after tax and lowers nothing now, and traditional withdrawals are taxed later.

Take a single filer earning $60,000, paid every two weeks, who saves 6%. The $138.46 contribution cuts federal withholding from $193.08 to $176.46 a check, so take-home pay falls by only $121.85. In most states with an income tax, the state line drops too. Pennsylvania taxes 401(k) contributions.

The 2026 limit is $24,500, plus $8,000 more at age 50 or older. See the 401(k) and pre-tax deduction entries, or add a percentage in the salary paycheck calculator.