Most companies have an option to have the money for your 401K taken out of your check before taxes so that your taxable income is less. As far as paying taxes on the 401K you can't avoid that as far as I know. When you cash it out the taxes come out then (also some fines if you cash it out before retirement age).

All 401k funds are pre-tax. You may withhold as much as your company will allow you to withhold. If you move from one company to another, you have the option of rolling over those funds into another 401K program or other IRA accounts to avoid paying taxes on that money until you use it. If you happen to make it until retirement without touching those funds, you have the option of selecting the amount of funds you use over a year's period, but you will be required to pay taxes each year on the funds you have receieved for that year.

The annual employee contribution limit for 401(k), 403(b), or 457 savings plans for 2012 is $17,000.

The Annual catch-up contribution limit for 401(k), 403(b) or 457 savings plans if employee is age 50 or over on the last day of the calender year is $5,500.

It should also be noted that the annual limit for combined employer - employee contributions to a defined contribution plan is $50,000.