401(k) plans are retirement saving plans that usually are offered by employers. When you contribute to a 401(k), your boss withdraws your contribution from your paycheck before he takes out your taxes. This means you don't have to claim those contributions on your tax return. You just have to fill in the right income on your tax return.
Entering the Right Income
After the end of the year, your employer will send you a W-2 form that lists everything he paid you and everything he took out. You use that W-2 form to complete your tax return. The form can be complicated, though. Because different rules apply to different types of taxes, many W-2s have multiple numbers for your income. Tax preparation firm H&R Block recommends that you use the amount in Box 1 as your wages on your federal return. That number will reflect the withdrawal of your 401(k) contributions.
What About IRAs
If you have an individual retirement account of your own, you may have to report your contributions to that account. Money that you put into a Roth IRA isn't tax-deductible, so there's nothing to show on your tax return. If you put money into a traditional IRA, you can deduct it in the correct box on your tax return. For the 2013 tax year, you would use line 32 on the 1040 return or line 17 on the simplified 1040A. If you forget to include your contribution, you will pay more taxes than you need to. Fortunately, the Internal Revenue Service lets you fix the error and get your deduction back by filing an amended return after the fact.
Amended Tax Returns
When you make a mistake on your taxes -- like leaving off a deduction or reporting too much income -- the IRS gives you three years to fix it. To fix the error, you need to send the IRS a special Amended U.S. Individual Income Tax Return form; as of the 2013 tax year, this has to be done on paper. Once the IRS gets your amended return and reviews it, the agency will refund the excess taxes paid if it agrees with your changes. If you don't file the amended return within three years, though, you're out of luck.
Solo 401(k) for Gig Workers
If you don't have a job and work gigs or do contract work instead, you might choose to set up a solo 401(k) for yourself. A solo 401(k) plan works like a 401(k) at work, but it's for your benefit when you work as as contractor and don't have employees. If you put money into a solo 401(k) plan or other qualified self-employed retirement plan, you write it off on line 28 of your 1040 tax return. As with other deductions, if you forget to do this, you can file an amended tax return within three years of the original return you filed.
- H&R Block: What Do the Boxes and Codes on the W-2 Mean?
- Bankrate: Traditional IRA vs. Roth IRA
- IRS: Form 1040 -- U.S. Individual Income Tax Return
- IRS: Form 1040A -- U.S. Individual Income Tax Return
- IRS: Ten Facts on Filing an Amended Tax Return
- IRS: 401(k) Plans for Self-Employed Individuals Fact? Or Fiction ...
- MySolo401k: Is Solo 401k Contribution Deductible as Business Expense?
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