If you haven't been keeping perfect track of how much you were paid or how much you contributed to your 401(k) during the year, don't sweat it: Your employer will send you a W-2 in January that has all the details you need to file your taxes. Your taxable income takes into account your 401k on W-2 forms you receive.
When you receive your W-2, it will include documentation of all 4-1k contributions that have been made.
Finding More About W-2 Reporting
Your safe harbor 401(k) contributions are already accounted for when your employer reports your wages, tips and other compensation in Box 1 of your Form W-2. However, your 401(k) contributions aren't taken out of the Social Security wages reported in Box 3 or the Medicare wages in Box 5 because 401(k) contributions are still subject to those taxes. For example, if you contribute $4,000 of your $49,000 salary to your 401(k) plan, your Box 1 would show $45,000 while Boxes 3 and 5 would both show $49,000. In Box 12, your traditional 401(k) contributions are signaled by the letter "D."
Looking at Roth 401(k) Contributions
If you contributed to a Roth 401(k), those contributions are made with after-tax dollars, which means they aren't excluded from your taxable income – and you can't deduct them either. On your W-2, Roth 401(k) contributions show up in Box 12 but are signaled by the initials "AA." Though you can't deduct these, you can use them toward figuring your retirement savings credit, if you're otherwise eligible. Plus, when you take qualified distributions in retirement, all the money comes out tax free.
Obtaining Retirement Savings Credit
Formerly known as the Retirement Savings Contribution Credit, the Retirement Savings Credit allows low-and-moderate income taxpayers to save more money. The amount of the credit depends on the adjusted gross income (AGI), with a maximum of $2,000 for individuals and $4,000 for married couples filing jointly. For 2017, single taxpayers may claim this credit if their AGI is $31,000 or less, while those married filing jointly with AGIs or $62,000 or less are eligible. You can use this credit with any IRS-qualified retirement savings plan.
Reporting Considerations For Deductions
Even though you can see the amount of your W2 retirement contributions, you don't get to write off that amount on your income tax return, because it has already been taken out of your income. For example, say that you made $49,000 at your job but put $4,000 in your 401(k) plan. Box 1 of your W-2 will only show $45,000 of taxable income, not $49,000, which means essentially that your $4,000 has already been deducted before the income even hits your tax return.
- IRS: 401(k) Plan Overview
- IRS: Form W-2 and W-3 Instructions
- IRS: Retirement Plans FAQs on Designated Roth Accounts
- IRS: Retirement Savings Contributions Credit (Saver’s Credit)
- IRS. "Retirement Savings Contributions Credit (Saver's Credit)." Accessed Nov. 5, 2020.
- IRS. "Income Ranges for Determining IRA Eligibility Change for 2021." Accessed Nov. 5, 2020.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."