401(k) and IRA Contributions

This article walks through how to model employee salary deferrals to a 401(k) and contributions to an IRA. For information on how to model contributions to self-employed retirement plans such as a Solo 401(k)s, SEP IRAs, and/or SIMPLE IRAs:

Where Do I Enter Contributions to Retirement Plans for Self-Employed Individuals?

401(k) Contributions

Employee pretax salary deferrals to a 401(k) reduce taxable wages and are modeled on the Pretax Savings Deferrals line in the Wages Worksheet. 



Values modeled here reduce Gross Wages to arrive at Taxable Wages. Although pretax savings deferrals are exempt from taxable wages and taxation, they are still included Medicare Wages and are subject to payroll (FICA) taxes. 

In this example, Peter has $124,000 in gross wages. By contributing $5,000 to his pretax 401(k), he reduces his taxable wages to $119,000 and his Medicare wages remain at $124,000. 

Pretax contributions can also be modeled in the Income Annualizer tool using the same Pretax Savings Deferrals line. 

Set an annual maximum contribution amount by clicking Max, checking the Set Annual Maximum box, and providing the annual maximum amount. This will prevent periodic contributions per paycheck to exceed the annual amount set. 

While not included on the Wages Worksheet, Employee Roth salary deferrals to a 401(k) can be modeled in the Income Annualizer on the Post-Tax Deductions line. Values modeled here will not reduce taxable wages. Annual maximums can also be set by clicking Max. 

IRA Contributions

Traditional and Roth IRA contributions are modeled in the IRA Deduction Worksheet within the Schedule 1 Deductions tab.

This worksheet features the client's MAGI, their taxable compensation, maximum IRA contribution amount, and appropriate deduction phase thresholds.

To model their IRA contribution, first indicate whether the client is a covered participant in an Employer Retirement Plan using the checkbox. Employer coverage affects phaseout thresholds and may affect the client's maximum contribution amount. For more information covered participation: IRS Publication 590-A.

Once employer coverage indicated, model their contribution amount on the Traditional or Roth IRA Contribution line. The software will automatically calculate their total deductible amount based on taxable compensation and phase out.