- Information about 401(k) Plans
Information about 401(k) plans
- What is a 401(k) plan?
- How do I enter 401(k) contributions in TurboTax?
- How do I enter Self-Employed Individual 401(k) Contributions?
- What are Rollovers and Direct Transfers?
- How much time do I have to roll over a retirement distribution?
- How do I report an outstanding/defaulted 401(k) loan on my Form 1040?
What is a 401(k) plan?
A 401(k) plan allows you to contribute part of your cash wages to a retirement plan on a pretax basis. These deferred wages are not subject to income tax withholding and are not reported on Form 1040.
The amount you can choose to defer is limited. The maximum amount of deferral for 2007 is $15,500 for all 401(k) plans in which you participate. If you are 50 or over, you may be eligible to make additional catch-up contributions of up to $5,000 for the 2007 tax year. Employers often match some of the employee contributions.
How do I enter 401(k) contributions in TurboTax?
Normally contributions to your 401(k) retirement plan show up in box 12 of your W-2 form.
On the Enter Your W-2 screen in TurboTax, select the Box 12 Letter Code D - Elective Deferrals to 401(k) and enter the contribution amount to the right. Below that, select the Retirement Plan checkbox for Box 13.
You can get to the Enter Your W-2 screen by clicking the Federal Taxes tab, then the Income subtab, then going to the first topic Wages and Salaries.
How do I enter Individual Self-Employed Contributions to 401(k)?
If you're self-employed, you may have contributed to one of these self-employed retirement plans for 2007:
- Keogh
- SEP
- SIMPLE
- Individual 401(k)
TurboTax Basic, Deluxe or Premier
Follow these steps:
- Click the Federal Taxes tab, then click the Income subtab.
- Choose to Skip W-2. Click Continue.
- Choose Select Specific Topics.
- Under the Business Income and Expenses section, click Start or Revisit next to Business Credits and Deductions.
- On the Less Common ... Credits screen, select the checkbox Self-Employed Retirement Plans and click Continue.
- Follow the on-screen instructions to enter your 2007 contributions to your retirement plan.
TurboTax Home and Business
Follow these steps:
- Click the Business tab.
- Click the Continue button.
- Choose the Select Specific Topics button.
- Click View List next to the Less Common Business Situations topic.
- Choose to Start or Revisit the Invesmtent Credits, Self-employed Retirement category.
- On the Less Common ... Credits screen, select the checkbox Self-Employed Retirement Plans and click Continue.
- Follow the on-screen instructions to enter your 2007 contributions to your retirement plan.
Rollovers and Direct Transfers
According to Kiplinger, the tax-free transfer of funds from one individual retirement account to another or from a company plan to an IRA is tax-free. If you take possession of the funds, the money must be deposited in the new IRA within 60 days. Beware that when the rollover method is used to move money from a company plan to an IRA, 20 percent of the amount will be withheld for the IRS, even though the rollover is tax-free if the money is in the IRA within 60 days. To avoid this automatic withholding, use the direct transfer method to move money from a company plan to an IRA. You can also use a rollover to move money from a medical savings account (MSA) to a health savings account (HSA).
Rollovers are reported on Form 1099-R, and are not taxable transactions, though they must be shown on your tax return. The Form 1099-R part of the TurboTax program handles rollovers.
Kiplinger defines a direct transfer as a method to move funds from one individual retirement account or Keogh plan to another. You can also use this method to move money from a company retirement plan such as a 401(k) to an IRA. With a direct transfer, you order one sponsor to transfer the money directly to your new IRA; you do not take possession of the funds. There is no limit on the number of times you can move your money via direct transfer. However, if you take possession of the funds and personally deposit them in the new IRA, the switch is considered a rollover. You can use the rollover method only once each year for each IRA account you own. The direct transfer method must be used to move funds from a company retirement plan to an IRA, or else 20 percent of the money withdrawn from the company plan will be withheld for the IRS, even if no taxes are due.
How much time do I have to roll over a retirement distribution?
You have 60 days to complete the rollover after you receive the distribution. The IRS may waive the 60-day requirement in certain cases, such as in the event of a casualty, disaster, or other event beyond your control. To receive the waiver, you must usually make a request for a letter ruling and pay a $95 fee. For more information on the Direct Rollover Option, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
I left a company where I had an outstanding loan through my 401(k) and did not pay the loan back. How do I report this on my Form 1040?
Your pension plan should give you a Form 1099-R that reports the outstanding loan as a distribution from the 401(k) plan. This income is then reported as ordinary income on line 16b of Form 1040. If you are under 59-1/2, you are also subject to a 10% additional tax on early distributions from qualified retirement plans unless you qualify for an exception listed in IRS Publication 575, Pension and Annuity Income. This 10% additional tax is reported on line 59 of Form 1040.
