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Am I taxed on employer contributions to 401k?

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  • Am I taxed on employer contributions to 401k?

    I am a 3rd year resident evaluating contracts, and I wanted to put emphasis on retirement accounts early in my career.  I know that the max 401k contribution is 54K and that I can contribute up to 18K of that.  If I were to get my potential employers to contribute 36K of my employed compensation directly to my 401k (or 403b if I end up gov't or non-profit), would I be liable for any taxes on it up front (eg. FICA or similar)?  Thanks in advance for any help provided!

  • #2
    Your max 401k contribution in 2018 is $18,500 employee and $36,500 employer for a total of $55k. Catch-up contributions for age 50+ remain at $6k.

    You're not taxed on employer contributions at the time the funds go into your account, but you are taxed when the funds and related earnings are distributed to you.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      I am a 3rd year resident evaluating contracts, and I wanted to put emphasis on retirement accounts early in my career.  I know that the max 401k contribution is 54K and that I can contribute up to 18K of that.  If I were to get my potential employers to contribute 36K of my employed compensation directly to my 401k (or 403b if I end up gov’t or non-profit), would I be liable for any taxes on it up front (eg. FICA or similar)?  Thanks in advance for any help provided!
      Click to expand...


      For employed (W-2), employer contributions to qualified plans like 401(k) and 403(b) are not reflected anywhere in your taxable income.  It's a tax deduction for your employer.  Employer contributions can only be pretax; for example, even if you make elective deferrals to a Roth 401(k), any employer match or profit-sharing will not be Roth.  On the other hand, your elective deferrals (employee contributions) only reduce your federal income tax; they do not reduce your FICA taxes (SS 6.2% up to $127,200 of income, MCR 1.45%).

      For the self-employed (1099, i.e. sole proprietor) making employer contributions *for other employees, not oneself* it reduces your taxable income and self-employment tax.  You put the employer portion on Schedule C [line 19] which reduces your business net profit [line 31], which is then imported onto Schedule SE [line 2] and then reduced by the 7.65% exemption to figure the self-employment tax due (12.4% on SS-taxable wages, 2.9% on Medicare wages).  Employer contributions *to yourself* don't go on Schedule C; they rather go on form 1040 [line 28] and thus don't reduce your SE tax.  You then deduct half of self-employment tax on your personal form 1040 [line 27].

      As Johanna said, all employer contributions are pretax, so you will be taxed on them as usual income when you draw them in retirement.

       

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      • #4
        Thanks very much to both of you guys.  This was a big help!

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