401(k) Retirement Contribution
Pre-tax contribution to your employer-sponsored retirement plan. Reduces taxable income now. 2024 limit: $23,000.
Who pays it
Anyone who's enrolled in their employer's traditional 401(k) plan. Contributions come straight out of your paycheck before federal income tax is calculated.
How much
You choose: typically 1–15% of your pay, capped at the IRS annual limit ($23,000 in 2024, $23,500 in 2025; +$7,500 catch-up if you're 50+).
Where it appears on your W-2
Reported on Box 12 with code D (e.g., 'Box 12D'). Reduces your Box 1 (federal taxable wages) but not Box 3 or Box 5.
Tax impact
Reduces your federal taxable income dollar-for-dollar this year. You pay tax later when you withdraw in retirement. Most employers match a percentage — taking the full match is the highest-return move in personal finance.
Common questions about 401K
What's the difference between a 401(k) and a Roth 401(k)?
Traditional 401(k) is pre-tax now, taxable in retirement. Roth 401(k) is post-tax now, tax-free in retirement. Same annual limit.
Am I leaving money on the table?
If your employer matches and you're not contributing at least up to the match, yes — that's a guaranteed return you're walking away from.
What happens if I exceed the 401(k) limit?
The excess is added back to your taxable wages. You'll owe tax on it now and again on withdrawal — a double tax. Check with HR if you switched jobs mid-year.
Filing your taxes?
If understanding 401K is part of getting your return right, these tools handle the math for you.
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