April, 2005
Q: Do I have to pay Social Security taxes on the money I contribute to my 401(k) plan?

A: Many 401(k) investors mistakenly believe that the money they contribute to the plan isn’t taxed at all. But contributions are not exempt from Social Security taxes. For example, if you contribute $2,000 to a 401(k), you will pay Social Security taxes on the entire amount unless you have already paid the maximum Social Security taxes for the year. The silver lining is that your Social Security benefits won’t be reduced by your participation in a 401(K). Of course, one of the greatest things about contributing to a 401(k) is that the money you contribute will be exempt from federal income taxes. It will also be exempt from any state taxes unless you live in Pennsylvania. Contributions are also exempt from local taxes in many municipalities.
 

These articles are in intended to be general guidelines and information to the public.  Be sure to consult with your tax professional regarding your specific situation.