question.jpgIn Federal Income Tax

I have a 401(k). How are my contributions taxed?

If you have a 401(k) plan, you contribute part of your wages to the plan. Those deferred wages are not subject to income tax. However, they are still subject to Social Security, Medicare, and federal unemployment taxes. You may only defer $14,000 a year in 2005, however; though, you can also make a $4000 catch up payment if you are over 50. Starting in 2006, employees can designate all of their pre-tax deferrals as after-tax Roth contributions.