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Is 401(a) Tax Deferred?


Guest John O
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We are a governmental entity. We have adopted a 401(a) defined contribution plan as our alternative retirement plan in lieu of Social Security beginning Oct 1, 2001.

Is the 401(a) tax deferred from federal, state, and/or medicare?

The agency is contributing 6.2% and the employee is contributing 6.2% (mandatory) to this 401(a) in place of Social Security. How does the W-2 reflect these contributions? Thanks!

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The employer contributions are automatically tax-deferred for federal income tax and federal income tax withholding purposes, and exempt from Medicare taxes.

The employee contributions will normally not be tax-deferred. Through an arrangement known as a "pick-up" arrangement under Internal Revenue Code section 414(h)(2), they can be made to be tax-deferred for federal income tax and federal income tax withholding purposes. Check revenue rulings and private letter rulings under Code section 414(h)(2) for details and specific requirements. Regardless of whether a pick-up arrangement is adopted, however, the contributions will be subject to Medicare taxes under Code section 3121(v).

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest Ralph Amadio

Carol, I seldom have disagreement with learned counsel, however you state that contributions under the plan described are subject to SSA contributions. I believe, since this plan is intended to be a SSA alternative under 3121(B) 7 (F), the circumstances would preclude such treatment. I do agree that the contributions would be subject to Medicare. Comments?

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  • 3 weeks later...

Sorry, I started typing without fulling engaging brain. And between terrorism (my office is 2 blocks from the White House) and tornados, I've been a bit absent here lately. You're right, Ralph, and I have edited my post to clarify that only the Medicare portion of FICA taxes, not the Social Security portion, would be due if (a) the entity is not subject to a Section 218 agreement and (B) the plan meets the requirements for being a substitute for Social Security.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest Ralph Amadio

Perfectly understandable, under the circumstances. As a military vet, have had similar "stress cracks" in my thinking lately. God bless.

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