I Started a 401K This Year. What Do I Need to Know When I File?

401K, IRA, Stocks Two old ladies having coffee and fun on a day out

Congratulations on starting a 401(k)! Not only will your future-self thank you for investing now, but there are also some fantastic benefits you can enjoy now.

Since my husband started his first job post-graduation, he’s been investing in his company’s 401(k). To be honest, when he first started we were on a tight budget so it felt weird contributing, but we knew being able to invest in a 401(k) would be a huge asset. Now over a decade later, those consistent contributions have grown considerably, and more of the growth is from the returns rather than our contributions.

Why 401(k)s Rock

Employees who take advantage of their employer’s 401(k) come out ahead multiple ways.

  • You contribute with pre-tax dollars: With a traditional 401(k), your contributions go in tax-free.
  • You reduce your taxable income: Since your contributions come in pre-tax, that means your taxable income is lower. Double win!
  • You can get free money through your employer match: If your employer offers this, go for it! Check with Human Resources to see what the exact qualifications are, but a 100% match is a fantastic benefit.
  • You may be able to get the Saver’s Credit at tax time: If you invest in your retirement, you may be eligible for the Saver’s Credit just for investing in your retirement. The Saver’s Credit may be a credit up to $1,000 if you are single and $2,000 married filing jointly.

Note: If you have high-interest debt, such as credit cards, you may want to just put in enough to get the match. Once you’ve knocked them out, you can then up your 401(k) contributions.

What You Need to Know When Filing

With all these amazing benefits, you’d think you’d have to fill out some forms at tax-time to optimize things, right? Nope. Which is another reason why investing in a 401(k) is a smart move.

Your 401(k) contributions will be reflected on your W2, and using tax software like TurboTax makes it a cinch. TurboTax securely imports tax information directly from over 1 million employers and participating financial institutions, eliminating manual data entry and increasing accuracy.

We find that using software helps us get it done on our schedule and keeps things simple. As always, please make sure you keep your paperwork organized when you get ready to file your taxes. Want to see how much you’re saving now? Take a look at your W2 you can see how much your taxable income is lowered by contributing to your 401(k).

Thoughts on Investing in Your 401(k)

I hope you enjoy the tax benefits now and down the line with using your 401(k). I want you to maximize your 401(k) benefits and your retirement. So how much are you putting in your 401(k)? Does your company offer a match?

Don’t worry about knowing these tax rules. TurboTax will ask you simple questions about you and give you the tax deductions and credits you deserve based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. The TurboTax Live CPA or Enrolled Agent can also review, sign, and file your tax return.

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