What Tax Documents Are Issued for a 401(k)?

A 401(k) plan serves as a tool for retirement savings, and like other financial accounts, it involves specific tax reporting requirements. Understanding the various tax documents issued for 401(k) activity is important for participants. These documents provide information needed to accurately prepare annual income tax returns.

Understanding 401(k) Tax Reporting

Plan administrators, employers, or financial institutions that manage 401(k) accounts issue tax documents. These documents report various activities within the plan, including contributions made by participants and employers, distributions taken, and the year-end account value. The purpose of these forms is to ensure that both the plan participant and the Internal Revenue Service (IRS) have a clear record of all tax-relevant transactions for the calendar year.

Most of these tax documents, such as those detailing distributions or contributions, are typically issued by January 31st of the year following the reported activity. An exception is Form 5498, which has a later mailing deadline, by May 31st. This later deadline accounts for contributions that can be made for the prior tax year up until the tax filing deadline.

Tax Documents for 401(k) Withdrawals and Rollovers

When funds leave a 401(k) plan, whether through a withdrawal or a rollover, the transaction is reported on Form 1099-R, titled “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.” This form details the gross amount of the distribution in Box 1 and the taxable portion in Box 2a. Federal income tax withheld from the distribution is shown in Box 4.

The distribution code in Box 7 on Form 1099-R identifies the specific type of distribution, which determines its tax implications. For instance, Code 1 indicates an early distribution with no known exception, potentially subject to an additional 10% tax if the recipient is under age 59½. Code G, on the other hand, signifies a direct rollover to another qualified plan or IRA, which is not a taxable event. Other codes cover situations such as normal distributions (Code 7), distributions due to death (Code 4), or disability (Code 3).

Differentiate between taxable distributions and non-taxable rollovers, even though both are reported on Form 1099-R. For example, a direct rollover (Code G) will show a taxable amount of zero in Box 2a, indicating it is not subject to income tax. Conversely, a cash withdrawal that is not rolled over will have a taxable amount listed, which must be included in gross income.

Tax Documents for 401(k) Contributions and Balances

Contributions made to a 401(k) plan are reported on Form W-2, Wage and Tax Statement, issued by an employer. Box 12 on Form W-2 shows elective 401(k) deferrals, identified by specific codes. Code D is used for traditional 401(k) contributions, while Code AA indicates designated Roth 401(k) contributions. These amounts represent the employee’s pre-tax or after-tax contributions.

Traditional 401(k) contributions reduce the employee’s taxable wages reported in Box 1 of the W-2. Roth 401(k) contributions are made with after-tax dollars and do not reduce current taxable income. A checkmark in Box 13 of the W-2 indicates participation in a retirement plan, which can affect eligibility for certain deductions.

While Form 5498, IRA Contribution Information, is primarily for Individual Retirement Arrangements (IRAs), some 401(k) plan administrators may issue it. This form reports contributions to IRAs and the fair market value of the account at year-end.

Using 401(k) Tax Documents for Filing

The tax documents received for 401(k) activity are necessary for accurately completing Form 1040. Information from Form 1099-R, such as gross distributions and taxable amounts, is entered into specific lines on Form 1040 to determine the income from retirement plan distributions. Tax withheld as shown on Form 1099-R is then credited against the total tax liability.

For contributions, the amounts reported in Box 12 of Form W-2 for 401(k) deferrals are already factored into the wages reported in Box 1. This means that traditional 401(k) contributions have already reduced the taxable wages. Roth 401(k) contributions, being after-tax, do not alter the taxable wages.

It is important to keep copies of all 401(k) tax documents for personal records and potential tax audits. Cross-referencing the information on these forms with personal contribution records or distribution statements is a prudent step. If discrepancies arise or complex situations are present, seeking guidance from a qualified tax professional is advisable.