401k

401(k) Contributions Don’t Mean Tax Savings

Every year, I hear the same misconception.

Someone tells me, “I put $23,000 into my 401(k), so I saved $23,000 on taxes.”

But that’s not how it works.

Putting money into a traditional 401(k) or IRA does not save you money on taxes. At least not right away. What you’re really doing is deferring taxes. You are choosing to delay paying tax until later, usually during retirement.

That may sound like a technicality, but it can make a big difference.

When you contribute to a tax-deferred account, you reduce your taxable income today. You don’t pay taxes on that money this year. But you will when you withdraw it later.

So the real question is, “is it worth it?”

It depends on your current and future tax brackets.

Let’s walk through an example.

Scenario 1: High Earner Today, Lower Income in Retirement

  • You currently earn $450,000
  • You’re in the 32% tax bracket
  • You contribute $23,000 to your 401(k)
  • That defers $7,360 in taxes this year

Now fast forward to retirement.

You’re spending $200,000 per year. That puts you in the 24% bracket. When you withdraw the $23,000, you owe $5,520 in taxes.

You avoided $7,360 and only paid $5,520. That’s real savings.

Scenario 2: Middle-Income Earner, Same Bracket in Retirement

  • You currently earn $200,000
  • You’re in the 24% tax bracket
  • You contribute $23,000 to your 401(k)
  • That defers $5,520 in taxes this year

In retirement, you’re still in the 24% bracket. When you take out the money, you owe the same $5,520 in taxes.

In this case, you didn’t save. You only delayed the bill.

Why This Matters

People often assume any 401(k) contribution means automatic tax savings. But that only happens when you withdraw the money at a lower tax rate than when you contributed it.

Choosing between a traditional 401(k) and a Roth 401(k) depends on your current income, future spending needs, and tax outlook. There is no one-size-fits-all answer.

If your income is high now and likely to be lower later, tax deferral can be a great strategy. But if you are in a lower bracket today, a Roth contribution might be the better long-term play.

Know your numbers. Know your brackets. And don’t blindly follow common advice without running the math.
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Your Fiduciary Financial Advisor in Southlake, TX

Stop by our Southlake wealth-management office, just off TX-114 and minutes from Westlake, Trophy Club, and Colleyville, to meet the team that’s guided North Texas families and business owners for 25 years. Mills Wealth Advisors delivers fee-only financial planning, retirement-income strategies, tax-efficient investing, and exit-planning expertise to clients across the Dallas-Fort Worth metroplex. Tap the map below for turn-by-turn directions or give us a call to book your complimentary discovery meeting today.

  1. Leave Westlake
    • Head south (≈ 350 ft, restricted-use road).
    • Turn left toward Trophy Club Dr / Westlake Pkwy (≈ 440 ft, restricted).
    • Turn left onto Trophy Club Dr / Westlake Pkwy (0.1 mi).
  2. Join TX-114 East
    • Turn right onto TX-114 Frontage Rd (0.4 mi).
    • Use the left lane to merge onto TX-114 E (1.4 mi).
  3. Exit for Dove Rd / White Chapel Blvd
    • Take the Dove Rd exit (0.5 mi) and keep right.
    • Continue on W State Hwy 114 (0.9 mi).
  4. North White Chapel Boulevard
    • Turn right onto N White Chapel Blvd (0.3 mi).
    • At the first traffic circle, take the 2nd exit to stay on N White Chapel Blvd (2.2 mi).
    • At the next traffic circle, take the 3rd exit (≈ 460 ft).
  5. Arrive
    • Turn right; Mills Wealth Advisors will be on the left after ≈ 130 ft.
    • Address: 1207 S White Chapel Blvd #150, Southlake, TX 76092.
  1. Leave Trophy Club
    • From Hamper Ct, head southwest to Hogans Dr (≈ 350 ft, restricted).
    • Turn right onto Hogans Dr (0.2 mi).
    • Turn right onto Indian Creek Dr (≈ 400 ft).
    • Turn left onto Trophy Club Dr and continue toward TX-114 (0.4 mi).
  2. Join TX-114 East
    • Turn left onto TX-114 Frontage Rd (0.4 mi).
    • Use the left lane to merge onto TX-114 E (1.4 mi).
  3. Exit for Dove Rd / White Chapel Blvd
    • Take the Dove Rd exit (0.5 mi) and keep right.
    • Continue onto W State Hwy 114 (0.9 mi).
  4. North White Chapel Boulevard
    • Turn right onto N White Chapel Blvd (0.3 mi).
    • At the first traffic circle, take the 2nd exit to stay on N White Chapel Blvd (2.2 mi).
    • At the next traffic circle, take the 3rd exit (≈ 460 ft).
  5. Arrive
    • Turn right; Mills Wealth Advisors is on the left after ≈ 130 ft.
    • Address: 1207 S White Chapel Blvd #150, Southlake, TX 76092.
  1. Depart Colleyville
    • Head northwest (≈ 85 ft) to Colleyville Blvd.
    • Turn right onto Colleyville Blvd (0.2 mi).
  2. Pleasant Run Road
    • Turn left onto Pleasant Run Rd (2.0 mi).
    • At the traffic circle, continue straight to stay on Pleasant Run Rd (0.6 mi).
  3. South White Chapel Boulevard
    • Pleasant Run Rd becomes S White Chapel Blvd—continue for 0.5 mi.
    • At the next traffic circle, take the 1st exit (≈ 312 ft).
  4. Arrive
    • Turn right; Mills Wealth Advisors is on the left after ≈ 131 ft.
    • Address: 1207 S White Chapel Blvd #150, Southlake, TX 76092.
  1. Keller Parkway (FM 1709)
    • Head east on Keller Pkwy toward Rufe Snow Dr.
    • Pass Scooter’s Coffee on the right. Distance: 1.5 mi.
  2. Southlake Boulevard
    • Continue straight; Keller Pkwy becomes W Southlake Blvd. Distance: 1.0 mi.
  3. Davis Boulevard (FM 1938)
    • Turn right toward Davis Blvd / S Randol Mill Ave (112 ft).
    • Turn right onto Davis Blvd and continue 0.7 mi.
  4. W Continental Boulevard
    • Turn left onto W Continental Blvd. Distance: 1.7 mi.
    • At the traffic circle, take the 2nd exit to stay on W Continental Blvd (≈ 370 ft).
  5. Arrival on S White Chapel Boulevard
    • Turn right, then the destination will be on the left after ≈ 130 ft.
    • Mills Wealth Advisors – 1207 S White Chapel Blvd #150, Southlake, TX 76092.

1207 S. White Chapel Blvd.
Suite 150
Southlake, TX 76092

For more than twenty-five years, we’ve been serving the financial needs of businesses, individuals, and families in Southlake, Texas and around the country.
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