401(k) vs Traditional IRA: Which Cuts Your Tax Bill More?

How much tax does a contribution save?

A pre-tax contribution lowers your taxable income dollar for dollar, so the saving is the contribution multiplied by the tax rate on those dollars. For a single filer earning $100,000, a $10,000 contribution comes off income taxed at the 22% federal rate, saving $2,200 in federal tax.

Your state can add to that. In California the same $10,000 also lowers state tax at 9.3%, so the total saving is $3,130 ($2,200 federal and $930 state). The higher your marginal rate, the more each dollar contributed saves.

Deductibility isn't always guaranteed

401(k) contributions are always pre-tax regardless of income. Traditional IRA deductibility, however, phases out at higher income levels if you (or your spouse) are also covered by a workplace retirement plan. For a single filer covered at work, the phase-out range for 2026 is $81,000 to $91,000 of modified adjusted gross income.

Your state may tax them differently

A 401(k) contribution lowers your state income tax in most states, but not all: Pennsylvania and New Jersey, for example, tax 401(k) deferrals. That is why the same $10,000 contribution can save different amounts depending on where you live. In Pennsylvania the $10,000 still saves $2,200 of federal tax but nothing at the state level, and in a no-tax state like Texas the saving is federal only.

They aren't mutually exclusive

You can contribute to both in the same year, subject to each account's own limit. Maxing your 401(k) first (especially any employer match) and then topping up with an IRA is a common strategy to shelter as much income as possible.

The employer match is the part worth understanding first. As an illustration only: if an employer matched 50% of the first 6% of pay and you earned $100,000, contributing $6,000 would earn a $3,000 match, an immediate return that no tax saving can compete with. Check your own plan's match formula.

Timing: when contributions count

The two accounts have different deadlines. 401(k) deferrals come out of your paycheck, so they must be made through payroll by the end of the year. An IRA is more flexible: contributions for a tax year can generally be made up to the tax-filing deadline the following spring, which gives you time to see your final income before deciding how much to put in.

Common mistakes

Some errors are easy to avoid once you know them:

• Contributing to a 401(k) without capturing the full employer match, which leaves free money unclaimed.
• Assuming an IRA contribution is always deductible; if you are covered by a workplace plan the deduction can phase out at your income.
• Forgetting that older savers are allowed to contribute more, so the standard limits may not be the ones that apply to you; check the current IRS figures.
• Treating the tax saving as the only benefit: the money is locked in a retirement account, and withdrawals before retirement age can carry extra tax and penalties.

Taxolase treats 401(k), IRA, HSA and student loan interest as above-the-line deductions limited to their annual caps. It does not model the income phase-out of the IRA deduction, so if you are covered at work and near the phase-out range, treat the result as an upper bound.

Traditional versus Roth

Everything above is about pre-tax (traditional) contributions, which lower this year's tax and are taxed when you withdraw. Roth contributions are made after tax, so they do not reduce this year's tax, but qualifying withdrawals are generally tax-free. Which suits you depends on whether you expect a higher or lower tax rate in retirement than now, which no calculator can know for certain.

See the tax impact directly

Enter your 401(k) and IRA contributions as deductions in the Taxolase wizard to see exactly how many dollars of tax they save at your marginal rate — federal and state separately — and whether they're enough to drop you into a lower bracket. The Advisory step also estimates how much room you have left under each limit.