Your 401(k) or 403(b) contributions through your employer usually appear on your W-2. The amount you contribute to your tax deferred 401(k) or 403(b) plan should already be excluded from your “Wages, tips, other compensation” on your W2 when you receive it. You should see your 401(k) or 403(b) contributions in box 12 of your W2 with code D.
There are limits on how much you can contribute to retirement plans for your employer, the IRS provides this information at 401(k) and Profit-Sharing Plan Contribution Limits.
What does it mean to have a tax deferred retirement account, like a 401(k) or 403(b)?
Contributions to a tax deferred account, like your 401(k) or 403(b), allow you to reduce your taxable income in the year you contribute and then pay the taxes later when you take distributions from the account. Since these accounts are meant for retirement and many taxpayers have a lower annual income after they retire, this can save you money on your taxes.
Because these types of accounts are meant for retirement, you may have to pay up to 10% additional tax on disbursements you take before you are 59 ½ years old. There are certain situations for which you are allowed to take funds out of your tax deferred retirement accounts without having to pay an additional tax, though these are typically associated with major life events. The IRS provides more information about Exceptions to Tax on Early Distributions.
Check out A Millennial’s Guide to Investing for Retirement – Even if You Have Debt for more information and suggestions on managing your retirement accounts.
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