Do I need to do anything special on my taxes for my 401(k)?

So, do they have anything special to account for at tax time? The answer is, in most cases, no! 

Here's what you can tell them …

Your 401(k) contribution is pre-tax

When it comes to your 401(k), the money you contribute is typically deducted from your paycheck before taxes are taken out. This can provide a nice tax break now, but it also means that the money in your 401(k) has never been taxed. That doesn't mean you won't have to pay taxes on it eventually, though. 

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You’ll likely be taxed when you withdraw

Since the money in your 401(k) hasn't been taxed yet, you will have to pay taxes on it when you withdraw the money in retirement. This includes both the contributions you made and any investment earnings on those contributions. The good news is that, since you're likely in a lower tax bracket in retirement than you are now, this probably won't result in a huge tax bill.

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Is there a way to pay the taxes now? 

Yes! If you have a Roth 401(k) you contribute after-tax dollars, which means the money has already been taxed. This also means that you won't have to pay taxes on it when you withdraw the money in retirement.

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You may be able to reduce taxable income

Since 401(k)s are taken out on a pre-tax basis, it lowers your taxable income, resulting in fewer taxes paid overall! A financial advisor or other expert may be able to help you find ways to contribute more to your retirement plan to accomplish this.

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In most cases, there is nothing special you need to do on your taxes for your 401(k). The money in your 401(k) hasn't been taxed yet, so you will have to pay taxes on it when you withdraw the money in retirement. 

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Reach out to our team and we’ll help you and your clients take advantage of tax benefits and more!!

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This information is provided as general guidance and may be affected by changes in law or regulation. It is not intended as accounting or legal advice. If you have questions please reach out to our team.

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