What is 401(k) plan?
A 401(k) plan is a retirement plan in which an employee can elect to have the employer contribute part of the employee's wages to the plan on a pretax basis. These deferred wages are not subject to income tax withholding at the time of deferral. The deferred wages are not reflected on Form 1040 since they were not included in taxable wages of box 1, Form W-2. However, they are included as wages subject to social security, Medicare and federal unemployment taxes. The amount an employee can elect to defer is limited.
References:
Am I considered covered by an employer sponsored retirement plan for the year if I do not participate in the plan or if I did not work long enough to be vested?
The answer to this question depends on your type of retirement plan. If your employer's plan has a separate account for each employee and any amount was contributed or allocated by you or your employer to your account, you are considered covered. This is called a defined contribution plan. With this type of plan, it does not matter if you have worked long enough to be vested.
In the other type of plan, the plan administrator decides how much must be invested to provide the retirement benefit promised in the retirement plan. This is called a defined benefit plan. In this type of plan, if you meet the minimum age and years of service requirements to participate in your employer's plan, you are considered covered even if you decline coverage. It does not matter if you are vested for this type of plan, either.
The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The "Pension Plan" box should have a mark in it if you were covered.
References:
- Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs)
- Tax Topic 451, Individual retirement arrangements (IRAs)
Will the IRS figure how much of my pension is taxable under the General Rule?
If you cannot use the Simplified Method, you can ask the IRS to figure the tax-free part of your pension under the General Rule. There is a $75 fee for this service. Publication 939, General Rule for Pension and Annuities, contains a detailed explanation of the information required to be furnished with your request. Also, refer to Tax Topic 411, Pensions - The General Rule and the Simplified Method, for additional information. If your annuity starting date is after November 18, 1996, you generally cannot use the General Rule for annuity payments from a qualified plan.
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My 1099-R forms do not show any FICA or Medicare deductions. Do we pay FICA on retirement?
No, you do not pay social security and Medicare taxes on retirement income.
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I can't get my employer to pay me my pension money. Whom do I contact?
If you cannot get your employer to pay you your pension money, you should contact the Pension and Welfare Benefits Administration (PWBA) of the Department of Labor. To find out which office you are serviced by, contact (202) 219-8776. Alternatively, you may write them at:
U.S. Department of Labor
PWBA
Division of Technical Assistance and Inquiries
Room N-5625
200 Constitution Avenue N. W.
Washington, D.C. 20210
References:
This is the first year that I received retirement benefits. Are any of my benefits taxable?
If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received. Refer to Tax Topic 410, Pensions and Annuities, for detailed information, or Publication 575, Pension and Annuity Income. For social security and equivalent railroad retirement benefits, refer to Tax Topic 423 or Publication 915, Social Security and Equivalent Railroad Retirement Benefits.
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