Contributions to a traditional 401(k) retirement account or other qualified retirement plans are deductible from taxable income. The maximum deduction amount a taxpayer can get for his or her contributions to a 401(k) is the amount contributed.
Since there is a limit on how much a person can contribute to a 401(k) retirement plan, the deduction limit is the maximum amount contributed. At the time of writing, the maximum 401(k) contribution can be $19,500—with the catch-up contribution, this can be as high as $26,000.
What is catch-up contribution?
The catch-up contribution is the additional contribution allowed for individuals who are 50 and older. For the next couple of years, the catch-up contribution is $6,500. The updated the catch-up contribution bonus last year. Given this extra contribution amount isn’t updated every year—unlike the 401(k) contribution limits, it is expected that it will remain as it is for a while.
Itemizing and 401(k) Contributions Deduction
The contributions made to a traditional 401(k) or other qualifying retirement plans are made with pre-tax dollars. Therefore, the contributions are tax-deductible.
As for how to claim the 401(k) contributions deductions and whether or not you need to itemize, we will explain.
The 401(k), IRA, and other qualifying retirement plan contributions deductions are among one of the few that can be taken with the standard deduction. So, you aren’t required to itemize in order to take this deduction. These types of deductions are also known as the above-the-line deductions.
How to claim the 401(k) deduction?
As mentioned, you aren’t required to itemize deductions to take the 401(k) deductions for your contributions. Instead, you will fill out the Schedule 1—Additional Income and Adjustments to Income.
On Part 2 of Schedule 1, enter your contributions made with pre-tax dollars on Line 19. You can then subtract the contributions from your gross income and attach Schedule 1 to your federal income tax return. You can also use Schedule 1 to claim the educator expenses, student loan interest paid, tuition and fees, and other above-the-line deductions. Read this article to learn how to fill out Schedule 1 and get a free copy of the online fillable form.