Taxable income refers to the portion of your total income that is subject to federal and, in some cases, state income taxes. It includes wages, salaries, bonuses, and other forms of income, minus allowable deductions and exemptions. While taxable income is an important financial concept — and it affects how much you owe in taxes — it is not what a 401(k) refers to. In fact, one of the advantages of contributing to a traditional 401(k) is that it can reduce your taxable income in the current year. By setting aside pre-tax dollars into a 401(k), you defer paying taxes on that portion of your income until you begin withdrawing funds in retirement. This is a key feature of how a 401(k) supports long-term savings. Confusing the term “taxable income” with the structure of the retirement plan itself can lead to misunderstandings about how tax benefits work.