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Am I taxed on employer contributions to 401k?

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

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  • DMFA
    replied




    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!
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    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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  • jfoxcpacfp
    replied
    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.

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  • medguydan
    started a topic Am I taxed on employer contributions to 401k?

    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!
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