A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. Elective salary deferrals are excluded from the employee's taxable income (except for designated Roth deferrals).
The amounts deferred under your 401(k) plan are reported on your Form W-2, Wage and Tax Statement. Although elective deferrals are not treated as current income for federal income tax purposes, they are included as wages subject to Social Security (FICA), Medicare, and federal unemployment taxes (FUTA).
The contributions you make to a 401(k) plan, plus any employer match and any earnings in the account are all tax-deferred which means you won't owe any income tax on these funds until you withdraw money from your account in retirement.
A 401K is a type of employer retirement account. An IRA is an individual retirement account.
Is a 401(K) Withdrawal Considered Earned Income or Capital Gains? Traditional 401(k) withdrawals are considered income (regardless of your age). However, you won't pay capital gains taxes on these funds.
Once you start withdrawing from your traditional 401(k), your withdrawals are usually taxed as ordinary taxable income. That said, you'll report the taxable part of your distribution directly on your Form 1040 for any tax year that you make a distribution.
This expense should be reported in the operating expense section of the company's income statement.
Is a 401(k) match taxable? Yes. According to the IRS, employer contributions are deductible on an employer's federal income tax return, as long as contributions don't exceed limitations in section 404 of the Internal Revenue Code. Employer contributions are always taxed when withdrawn.
If you receive retirement benefits in the form of pension or annuity payments from a qualified employer retirement plan, all or some portion of the amounts you receive may be taxable unless the payment is a qualified distribution from a designated Roth account.
In the case of a Roth 401(k), you contribute with after-tax dollars. So, your employer would include your contributions in box 1 from your W-2. Whether you own a traditional or Roth 401(k), as long as you didn't take out any distributions, you don't have to do a thing on your federal or state return!
As a general rule, if you withdraw funds before age 59 ½, you'll trigger an IRS tax penalty of 10%. The good news is that there's a way to take your distributions a few years early without incurring this penalty. This is known as the rule of 55.
Form 1099-R is the Internal Revenue Service form reporting a taxpayer's distributions from pensions, annuities, IRAs, insurance contracts, profit-sharing plans and/or retirement plans (including section 457 state and local government plans).
Form 1099-R - 401(k) Distributions. How can we help? You'll receive a Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. from the payer of your 401(k) distribution.
A 401(k) is a type of qualified retirement plan. Within it, you can choose from a menu of investment options (generally mutual funds) where your money grows in a tax-advantaged manner.
Box 14 (Other) – You may enter the amount of employer matching and nonelective contributions made to the plan and the amount of voluntary or mandatory employee after-tax contributions (not including Roth).
A 401(k) is an employer-sponsored retirement plan that comes with tax benefits.
The employer reports elective deferrals on the participant's Form W-2, Wage and Tax Statement PDF. Although these amounts are not treated as current income for federal income tax purposes, they are included as wages subject to social security (FICA), Medicare, and federal unemployment taxes (FUTA).
Contributions to a traditional 401(k) are made with pre-tax dollars—meaning the money goes into your retirement account before it gets taxed. With pre-tax contributions, every dollar you save will reduce your current taxable income by an equal amount, which means you'll owe less in income taxes for the year.
Categorizing 401k Contributions in Quickbooks
Each contribution should be entered as an expense transaction, specifying the employee name and the corresponding amount.
Bottom Line. Your 401(k) is an investment account that holds securities and cash. Any securities in this portfolio are by definition assets because, unless they are something like an underwater short position, they can be converted to a positive sum of money.
Traditional 401(k) withdrawals are taxed at the account owner's current income tax rate. Roth 401(k) withdrawals generally aren't taxable, provided the account was opened at least five years ago and the account owner is age 59½ or older.
Employer Match: How Much and When
Depending on the terms of your 401(k), your contributions to your retirement savings plan may be matched by your employer in several ways. Typically, employers match a percentage of an employee's contributions up to a specific portion of their total salary.
Adjusted gross income (AGI) which includes earned wages and withdrawals from any retirement savings accounts, like individual retirement accounts (IRAs) and 401(k)s. Any nontaxable interest.
Employer Match Does Not Count Toward the 401(k) Limit
The good news is that these limits do not include employer matches. If you contribute, say, $23,500 toward your 401(k) in 2025 and your employer adds $5,000, you're still within the IRS limits.