Most people assume that putting $500 a month into a 401(k) shrinks their paycheck by $500. It doesn’t. A traditional pre-tax deferral lowers your taxable income, so a chunk of that contribution comes back to you as a tax reduction in the same paycheck. The real cost is meaningfully smaller than the sticker price — and an HSA routed through payroll can be cheaper still, because it’s the one common pre-tax deduction that also sidesteps FICA. Here’s the actual 2026 math.
The 2026 Contribution Limits
For 2026, the elective deferral limit for a 401(k) or 403(b) is $24,500, up from $23,500 in 2025. If you’re 50 or older, an $8,000 catch-up brings your total to $32,500. Workers aged 60 through 63 get a larger “super catch-up” of $11,250 in place of the $8,000, if the plan permits it. The IRA contribution limit holds at $7,500. On the health side, HSA limits rise to $4,400 for self-only coverage and $8,750 for family coverage, with a $1,000 catch-up at age 55 and older. An HSA requires a high-deductible health plan (HDHP) carrying a minimum deductible of $1,700 self-only or $3,400 family.
The Key Distinction: Income Tax vs. FICA
A traditional 401(k) deferral reduces your federal taxable income, and in most states it reduces state taxable income too. But it does not reduce FICA. Social Security (6.2% up to the $184,500 wage base) and Medicare (1.45%, no cap) are both calculated on your gross wages before any 401(k) deferral is subtracted. You still owe the full 7.65% on every dollar you funnel into the plan.
An HSA contribution made through payroll under a Section 125 cafeteria plan is different. It escapes federal income tax and FICA — both the Social Security and Medicare pieces. That makes a payroll HSA the only common pre-tax deduction that cuts all three taxes at once, which is why it beats the 401(k) dollar-for-dollar on immediate paycheck impact. (Always capture your employer match first — that’s free money and outranks everything else in the ordering.)
Worked Example 1: A $500/Month 401(k) Deferral
Take a single filer earning $85,000 in a state with no income tax, deferring $500 a month ($6,000 a year) to a traditional 401(k). Subtract the deferral and the $16,100 standard deduction and taxable income lands at $62,900 — squarely inside the 22% bracket, which for single filers runs up to $105,700 (the 12% bracket ends at $50,400). The deferral saves $1,320 in federal income tax (22% of $6,000).
| 401(k) deferral | $6,000/year ($500/month) |
| Federal income tax saved (22%) | +$1,320 |
| FICA still owed on full $85,000 | $0 saved |
| Net paycheck reduction | $4,680/year (~$390/month) |
So $500 a month of retirement savings really costs about $390 a month of take-home pay. The other $110 is money the IRS would have taken anyway and is instead staying in your retirement account.
Worked Example 2: Maxing an HSA Through Payroll
Same filer, same salary, but this time maxing a self-only HSA at $4,400 through payroll under a cafeteria plan. Because the contribution escapes both income tax and FICA, the savings stack:
| HSA contribution | $4,400/year |
| Federal income tax saved (22%) | +$968 |
| FICA saved (7.65%) | +$337 |
| Net paycheck reduction | $3,095/year (~$258/month) |
That’s roughly $258 a month out of pocket for $4,400 of savings — the FICA break is the piece a 401(k) can never match. If you’re eligible for an HSA and your employer offers payroll deduction into one, that’s the most tax-efficient dollar you can put to work this year.
The State-Tax Layer
The income-tax savings above assume a no-tax state like Florida or Texas, where only the federal benefit applies. In a high-tax state, a 401(k) deferral is worth even more because it also shrinks your state taxable income at your marginal state rate — so the net paycheck cost drops further. An HSA gets the same state-tax break in most states (a handful tax HSA contributions, so check your state). The takeaway: the higher your state income tax, the cheaper a pre-tax contribution becomes in real take-home dollars, and the wider the gap between sticker price and actual cost.
New for 2026: The Roth Catch-Up Rule
A SECURE 2.0 change now in effect changes the math for higher earners. If you earned more than $150,000 in Social Security wages in 2025 from the employer that sponsors your plan, your catch-up contributions must be made as after-tax Roth. Those Roth dollars do not reduce your taxable income, so a high earner’s catch-up no longer lowers this year’s tax bill — you’re paying tax now in exchange for tax-free growth and withdrawals later. The base elective deferral up to $24,500 can still go in pre-tax; it’s only the catch-up portion that’s forced to Roth for this group. If you’re below the $150,000 threshold, nothing changes and your catch-up can stay pre-tax.
Order of Operations
Capture the employer 401(k) match first — it’s an instant return. Then fund a payroll HSA if you’re HDHP-eligible, since it’s the only deduction that beats FICA. Only then push further 401(k) dollars toward the $24,500 limit. The match is free money; the HSA is the most tax-efficient dollar; the rest is still worth doing, just at a slightly higher real cost than it looks.
Run Your Own Numbers
These examples use a single filer, a no-tax state, and the standard deduction. Your real cost depends on your salary, filing status, state, and bracket — a 12%-bracket worker saves less per deferred dollar than a 22%-bracket worker, and a Californian saves more than a Texan. Plug your own salary, deferral, and state into the calculator below to see exactly what a 401(k) or HSA contribution will cost your paycheck.
Figures verified against IRS annual limit guidance (Notice 2025-67 style), Revenue Procedure 2025-32 for 2026 inflation-adjusted brackets and standard deductions, and IRS Notice 2026-05 for HSA contribution and HDHP deductible limits. Last updated August 2026.