Because the IRS allows you to contribute to your 401k with pre-tax dollars, you may be able to contribute more than you thought. The value of the deduction will depend on your tax bracket. Let’s say you invest $4,000 into your 401k, and you are in the 25 percent tax bracket. You would have paid $1,000 in taxes had the contribution been included in your pay. So, in effect, you only contributed the equivalent of $3000. The higher your tax bracket, the more you save on taxes. Also, as the account grows, there are no capital gains or taxes on dividends along the way, which you would have to pay if you invested that same money in a taxable account.