401(k) Tax Guide

Understanding how your 401(k) is taxed at every stage

Your 401(k) has different tax implications at contribution, growth, and withdrawal. Understanding these rules helps you minimize your lifetime tax burden and keep more of your retirement savings.

Contributions and Your W-2

Traditional 401(k) contributions reduce your taxable income (Box 1 on W-2) but are still subject to Social Security and Medicare taxes (Boxes 3 and 5). Your contributions appear in Box 12 with code D.

Withdrawal Taxes

Traditional 401(k) withdrawals are taxed as ordinary income. There is a mandatory 20% federal withholding on distributions. If you withdraw before age 59.5, you may owe an additional 10% early withdrawal penalty.