Box 1 on the W-2 form generally includes all taxable wages, salaries, tips, and other compensation subject to federal income tax. This includes wages earned from employment, commissions, bonuses, and taxable fringe benefits. However, Box 1 does not include certain types of income, such as amounts contributed to 401(k) plans. 401(k) contributions are made on … Read more
When it comes to 401k plans, understanding tax implications is crucial. Contributions made to a traditional 401k are pre-tax, meaning your taxable income is reduced in the year the contribution is made. However, this means that withdrawals in retirement are taxed as ordinary income. In contrast, Roth 401k contributions are made after-tax, so you don’t … Read more
When it comes to Social Security benefits, they are calculated based on your lifetime earnings. However, not all forms of income are counted. 401k distributions, for instance, are not included in the calculation. This means that taking money out of your 401k will not affect the amount of your Social Security benefits. However, if you … Read more
Colorado taxes 401(k) withdrawals if they are made before the account holder reaches the age of 59.5. This is because the IRS considers 401(k)s to be tax-deferred accounts, meaning that taxes on the contributions and earnings are deferred until the funds are withdrawn. However, there are some exceptions to this rule. For example, withdrawals made … Read more
If you take advantage of a 401(k) loan, the borrowed amount reduces your current 401(k) balance and your contributions going forward, including matching contributions from your employer, until the loan is repaid. Because you contribute less, you pay less in income taxes upfront. However, you avoid paying taxes on the loan amount while it’s outstanding. … Read more
If you declare bankruptcy, the money in your 401(k) retirement account could be protected. 401(k) accounts are generally considered tax-advantaged retirement accounts, and funds in these accounts are protected from creditors, including the bankruptcy trustee. However, there are exceptions to this rule, such as if the funds in your 401(k) account were obtained through fraud … Read more
401k plans offer a great way to save for retirement, and their growth doesn’t stop once you retire. After you retire, your investments continue to grow, potentially generating even more money for you. This is because your 401k is invested in a variety of stocks, bonds, and other investments that are designed to grow over … Read more
Certainly! 401(k) contributions can lessen your Adjusted Gross Income (AGI). The AGI serves as the foundation for calculating your taxable income. When you make pre-tax contributions to your 401(k), the amount you contribute is deducted from your AGI before taxes are computed. This strategy lowers your AGI, potentially shifting you into a lower tax bracket … Read more
Roth 401(k) contributions are made post-tax, meaning they are not immediately tax-deductions. However, since the earnings are never taxed, qualified withdrawals (at age 59.5 or later) are tax-free as well. The earnings accumulate tax-free based on the applicable investment return, providing the potential for significant growth over time. In terms of reporting on taxes, the … Read more
Fidelity 401k offers a feature that automatically stops contributions once a predetermined investment limit is reached. This limit can be established as a specific dollar amount or as a percentage of one’s salary. Once the limit is met, contributions to the 401k are paused until the following year. This automatic stop mechanism helps participants avoid … Read more