Why Is 401K Taxed?

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   David G. Pipes, CLU®, RICP®

   Business Development Officer, T.D. McNeil Insurance Services, Fresno, California

   A 401(K) defined contribution plan is a tax DEFERRED program instituted by your employer.  Contributions by you to the plan are normally tax deferred, meaning that there isn’t any current income tax on that portion of your income.)  The same is true if your employer makes a contribution.  When the funds are withdrawn they are taxable as ordinary income under most circumstances.  A distribution before you reach age 50.5 could incur an additional 10% penalty tax.               

   Answered on July 31, 2014

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