Skip to content

QuickBooks Payroll 401k – Setup, Deduction

QuickBooks Payroll 401k - Setup, Deduction

There are many different savings options when it comes to retirement planning. The 401(k) plan is one of the most popular methods for saving for retirement. A 401(k) plan is what? Simply put, a 401(k) is an employer-sponsored retirement savings plan. A 401(k) account can only be opened through an employer that provides one.

But 401(k) plans are more complex than first appears. Knowing how 401(k) plans operate and what they offer is crucial as you start to plan for and consider your retirement. We’ll delve into the details of 401(k) plans throughout this guide so you can better understand how they can aid in your retirement savings. 

An employee contributes a portion of her salary to a retirement plan called a 401(k). To supplement an employee’s contribution to their 401(k) plan, a company will frequently make a personal contribution.

The company incurs a 401(k) expense for the additional money it contributes, even though the employee’s contribution is a part of the wage expense. To show how much your business will contribute for a payroll period, you, as the employer, can record a journal entry for 401k expenses.

What Is A 401(K) Plan?

A 401(k) plan is a qualified plan that enables employees to have their employer contribute a portion of their salary to a retirement savings account. When we use the term “qualified,” we mean that the plan complies with IRS regulations and qualifies for tax benefits. The Internal Revenue Code’s subsection 401(k), which describes the regulations for this kind of retirement plan, is where the term “401(k)” originates. Your tax break may be received when you make contributions to your 401(k) plan or take distributions in retirement, depending on the type of plan you have.

How does a 401(k) work is a frequent FAQ. If your employer provides a 401(k) plan as a benefit, you can ask them to set aside some of your income as pre-tax contributions to a retirement account. Your funds will be invested in a variety of items within this account, including stocks, bonds, and mutual funds that you frequently choose yourself. 

401(k) plan contributions made by employees will appear on their W2 forms. To ensure that all contributions are reported for tax purposes, you as the employer should maintain accurate payroll records and payroll reports.

What is the difference between a 401(k) and a Roth 401(k)?

There are different types of 401(k) plans available. The two most popular 401(k) plans are traditional 401(k) plans and Roth 401(k) plans. We’ll discuss 401(k) plans in this article, as 401(k) plans are the most basic and common 401(k) type. To avoid any confusion, we’ll discuss what is the main difference between a 401(k) and a Roth 401(k).

In traditional 401(k) plans, employees can get retirement benefits. Employees have the option to designate a percentage of their earnings from each paycheck to go toward their retirement account. After pre-tax contributions, these funds are invested in a range of securities, including mutual funds, stocks, and bonds.

Money put into a typical 401(k) is tax-deferred. This means that income taxes are only applied to retirement fund withdrawals. One advantage of a tax-deferred account is it gives more returns over time as you can postpone the payment of taxes on earned income.

A Roth 401(k) is very similar to a standard 401(k). The main difference is in the taxation of contributions and earnings. Funds contributed to a Roth 401(k) are deducted from taxes. This means that the money you deposit into your Roth 401(k) will be subject to income taxes.

One advantage of a Roth 401(k) plan is that all retirement withdrawals, including interest, capital gains, and dividends, are fully tax-free. Roth 401(k) plans are the best option for individuals with higher incomes or those who anticipate being in a higher tax rate upon retirement.

Employer Matching

The employer match is one of the primary advantages of 401(k) plans, as you may already be aware. Employers are not required to match your contributions, but if they do, it may be considered free money. Utilizing employer contributions is a fantastic way to increase your contributions and gradually increase your retirement savings. 

Let’s examine a concrete illustration. Assume your annual salary is $60,000 and your employer will match 50% of that amount. You can get $3,600 by deducting 6% of your pay. You must contribute this much to take full advantage of your employer’s match. With a 50% match, your employer will give your 401(k) plan $1,800 annually.

Features Of Opening A 401(K):

  • Tax Breaks:
    Your taxable income for the year is reduced because contributions made to a traditional 401(k) are tax-deferred. For instance, your taxable income would be $45,000 if you made $60,000 and contributed $15,000 annually. Your savings also grow tax-deferred, so no taxes are due on any income from interest, dividends, or capital gains. However, withdrawals made after retiring will be taxed as ordinary income.
  • Lower Tax Bracket:
    You might be moved into a lower tax bracket for the year if your taxable income is reduced. This suggests that your annual tax burden might be lower.
  • Protect Yourself from Creditors:
    If you run into financial difficulties, you don’t have to worry about creditors seizing your 401(k) retirement savings (k). This is so that claims by creditors are prohibited by the Employee Retirement Income Security Act of 1974.
  • Employer Match:
    The employer match is one of the most sought-after perks of 401(k) plans. Although not every employer provides one, if they do, you essentially get paid for nothing. Contribute up to your employer’s contribution cap to increase your earnings. Try to contribute $6,000 over the year, for instance, if they agree to match 1:1 up to $6,000 of your salary. This will result in a $12,000 balance in your 401(k) account for the year.
  • High Contribution Caps:
    The IRS determines the contribution caps that can be made by 401(k) plan participants. The $19,500 contribution cap from 2020 will remain in effect for 2021.
  • Contributions Made After Turning 72:
    The majority of retirement accounts require required minimum distributions (RMDs), which are minimum payments you must make every year. In contrast, 401(k) plans allow you to keep making contributions as long as you are still employed and owe the company less than 5% of its equity.

Tips For Investing Your 401k (K):

Typically, your plan provider and employer will limit the investment options available to you in 401(k) plans. You invest in mutual funds, and occasionally index funds and exchange-traded funds, rather than specific stocks and bonds when using a 401(k) plan. Instead of investing in a single stock or bond, these funds place your money in a basket of securities.

It’s crucial to keep your risk tolerance in mind when investing in your 401(k). Bonds and other fixed-income investments are safer than stocks, which are typically the riskiest type of investment. Generally, it is advised to invest in riskier securities while you are young and to gradually reduce your exposure as you get closer to retirement. The general rule of thumb for calculating the percentage of your 401(k) that should be invested in stocks is to subtract your age from 110. Next, allocate the remaining portion to bonds.

This is only a general rule, so you should think about how much you’re willing to lose if the stock market crashes.

401(k) plan loans

If your employer permits you to take out a 401(k) plan loan, you can use it to pay off debt or to make purchases like a car or house. You must fulfill certain eligibility standards to be approved for a 401(k) plan. These conditions are as follows:

  • A participant’s maximum loan amount from their plan is $50,000, or 50% of their vested account balance, whichever is lesser.
  • The employee has five years to pay back the loan in quarterly installments.

The 401(k) plan loan is secure financing for larger purchases, such as a home. However, you can’t take more money out of the account than the loan limits, If you do, you could face a 10% early distribution tax and other legal repercussions. 

Post-retirement 401(k) withdrawal rules

You are eligible to take penalty-free withdrawals from your 401(k) after you hit retirement age of 59½. You have to pay income taxes on the money you withdraw from a 401(k). You are under no obligation to take money out of your savings immediately if you want to grow the savings more. Retirees have till the age of 72 (or 70½ if they turn 70½ before January 1, 2020). They will have to start taking RMDs once they hit this age. Retirees are required to withdraw a minimum amount from a qualified retirement account, known as RMD.

How Should A Pay Period Be Calculated?

Regular pay periods are those that are planned to happen every day, every week, every biweekly, every six weeks, every month, every three months, or every year. Any pay period that is not regarded as regular, such as a 10-day pay period that includes weekends and holidays, is referred to as a “miscellaneous pay period.” Employees are typically paid weekly, biweekly, semi-monthly, or monthly by their employers. The pay period determines how much an employee is paid. As a result, the employee’s pay status must be considered when determining a pay period.

  • Bear in mind that a weekly pay period consists of one pay period; a biweekly pay period, of two pay periods; a monthly pay period, of one pay period; a quarterly pay period, of one pay period; and an annual pay period, of one pay period. Regularly, quarterly, semi-annual, and annual pay periods take place under certain conditions, like paid leave.
  • Pay hourly workers according to the number of hours they put in during the pay period. To calculate the gross pay, multiply the number of hours worked during the pay period by the employee’s hourly rate.
  • Pay salaried employees their full salary according to their pay period. According to the U.S. Department of Labor, salaried employees are required to receive a set sum each pay period.

Regulations For 401(K) Withdrawals (K)

The government offers tax advantages for qualified retirement accounts, like 401(k) plans, to encourage people to save for retirement. Owners of contribution plans are prohibited from taking early distributions from their 401(k)s until they are 5912 years old. The withdrawal will be subject to a 10% early withdrawal tax penalty if the account owner doesn’t comply with the qualified distribution requirements.

The age restriction of 5912 is subject to some exceptions, though. In specific circumstances, a 401(k) participant may withdraw money before this age.

Here are a few examples: 

  • The owner of the account passed away
  • If the account holder becomes totally and permanently disabled
  • The owner’s unpaid medical expenses total more than 10% of their projected 2021 adjusted gross income (AGI) or more than 7.5% of their projected 2021 AGI.
  • Immediate and significant financial need

What Retirement Benefits 401(K) In QuickBooks Payroll

QuickBooks Payroll is an amazing software that helps make payroll and employee benefit-related functions much easier and smoother to handle. There is one such payroll item in QuickBooks Payroll. It is the QuickBooks Payroll 401k plan. It is related to retirement benefits. If the 401(k) is a competent plan then it can be established by the employer.

In this, all eligible employers can make salary deferrals or salary reductions in the form of offerings. It is based on a post as well as a pre-tax basis. The offerings or contributions made can be matching or non-elective to the plan. It is on behalf of employees who are eligible and there is a profit-sharing plan additionally part of the plan. The accumulated earnings are based on a tax-deferred way.

Setup Institution 401K Intuit QuickBooks Payroll

Normally there are two types of 401k plans. They are standardized and non-standardized plans. In case the plan is already standardized, the compensation will be careful wages that are considered after calculating a deferral.

The commission check will depend on how much percentage is allocated to the 401k plan. In the case of a standardized plan, there is no such choice for the 401k plan.

There are distinct and particular features related to the non-standardized plan. In the case of a non-standardized plan, an employer or employee has the choice of not contributing definite types of pay for retirement deferral.

There is a limit on the annual contribution in case of all eligible deferred contributions. Normally employee contributions are exempt from federal income tax withholding.

In a few cases, from state income tax withholding too but that depends on Medicare, Social Security, and other taxes too. Other types of retirement plans are 403(b); 408(k)(6) SEP; Elective 457(b); 501(c)(18)(D); etc.

How To Enter QuickBooks Payroll 401K As Deduction?

There are normally two ways to set up a payroll item for retirement gains. Also, you have to know about QuickBooks Payroll Deductions applicable on salary, Let us explore more about them:

  • There is normally an EZ Setup that has standard settings. This is mostly recommended for all types of users. It can add the company contribution payroll item related to the retirement plans.
  • See the QuickBooks Desktop menus at the top. The user needs to click on lists, then payroll item lists.
  • At the lower left of the Payroll Item List, the user needs to click Payroll Item. After that, the user needs to click on New.
  • The EZ Setup has to be chosen and then click on Next. Instructions on the screen have to be followed.

For example, in the case of some employees, the local income tax may not be reduced by retirement benefits such as 401k. In such circumstances, deselect the local tax item. It is there on the right side of the tax window of the payroll item setup.

All vendor information in a payroll item should be correct. The preset tax settings should not be adjusted. Also, have you employed QuickBooks Payroll Health Insurance for all employee salaries?

How Do I Post A 401(K) Journal Expense Entry?

  • Step 1:
    The date on which you record a 401k expense journal entry is the last day of your payroll period, so find that date. As an illustration, enter the information on January 31.
  • Step 2:
    Decide how much you will put into the 401(k) plans of your employees. Assume, for instance, that you will give $500.
  • Step 3:
    To create a new journal entry, enter the date on which you are recording the entry in the date column of your accounting journal. Write “01-31,” for instance, in the date column.
  • Step 4:
    The amount you will contribute to your employees’ 401(k) plans should be listed in the debit column on the first line of the journal entry, and you should write “401k Expense” in the accounts column. In expense accounts, debit indicates an increase. Put “401k Expense” and “$500” in the accounts and debit columns, respectively.
  • Step 5:
    On the second line of the entry, put “401k Payable” in the account’s column and the amount of your 401k contribution in the credit column. Credit denotes a rise in the payable account for your retirement plan, which represents a liability or sum you owe. 401k Payable, for instance, should be entered in the account column, and $500 should be entered in the credit column. 

How to roll over your 401(k) money

When an employee decides to change jobs or converts from a standard 401(k) to a Roth IRA to take advantage of additional tax benefits, they want to roll over 401(k) money. If you are looking to roll over your 401(k) into a different retirement account, your 401(k) funds can be rolled over in four different ways:

  • Hold onto your 401(k) at your previous company.
  • Roll over your 401(k) into an IRA
  • Transfer your 401(k) to the 401(k) plan of your new employer.
  • Cash out your 401(k)

You can request a direct rollover from your plan administrator, which will transfer your 401(k) funds to a new retirement account. You may receive a 60-day rollover in case you receive the money directly. You will then have sixty days to transfer all or a portion of your retirement funds to your new retirement account. You may be subject to a withholding fee if you don’t comply within 60 days.

It’s important to keep in mind that certain scenarios can come with hefty penalties. For example, if you cash out your 401(k), you can face a steep 10% withholding fee along with your income taxes.


401(k) plans are a great way to save up money for retirement. 401(k) plans are sponsored by the employer. It directs a portion of employee income into stocks, bonds, mutual funds, and other securities. 401(k) plans offer many benefits such as tax breaks. If you participate in 401(k), you can’t withdraw from your account until you reach the age of 59½, unless you meet the criteria for certain exceptions.

Help For 401 K Employee Benefit Settings Problem

For a complete understanding of QuickBooks Payroll-related functions and features as well as the 401k plans, get in touch with the QuickBooks Payroll support team. For complete details regarding plans related to retirement benefits, contact us for Live Chat after visiting our website QBPayrollHelp.

Our QBPayrollHelp team’s experts will be glad to help you out regarding the QuickBooks Payroll 401k plan and other plans. The technical team will help you out with complete step-by-step resolutions.


How can I customize the 401k reports?

💠 In QuickBooks, click on the Reports menu
💠 From drop-down options, select the Employee and Payroll option
💠 Then again select from further options that are More Payroll
Reports in Excel
💠 Click on the 401(k) Reports
💠 Go to the Report Type and select the type you want to do the options are Payroll or Census
💠 Then click on the Create Report button to create the report you want.

How to add the new payroll items to the employee record?

💠 In QuickBooks Desktop, go to the Employees menu
💠 Then select the option Employee Center
💠 Now in question, you have to double-click on the employee so that the Edit Employee window will open up
💠 In this, click on the tab name Payroll Info
💠 Go to the section Additions, Deductions, and Company Contribution
—–🔵You have to click on the Item Name to open the drop-down list
—–🔵Now click the new items of payroll for the retirement plans
💠 You see a box name Employee is covered by a qualified pension plan
💠 Then click on the OK button.

How Should My 401k Expenses Be Entered?

The first line of the journal entry should read “401k Expense,” with the amount you will contribute to your employees’ 401(k) plans in the debit column. For expense accounts, a debit represents an increase. In the accounts column, for instance, type “401k Expense,” and in the debit column, type “$500.”

Are 401(K) Contributions Considered A Cost?

Contributions to employee retirement accounts that you choose to make are tax deductible, regardless of whether they are safe harbor, profit-sharing, or employer-matching contributions. The value can therefore be deducted from the taxable income of your business.

How Do I Configure Payroll Deductions For Employees In QuickBooks?

+ Using the left-side menu, choose Employees.
+ Choose the Deduction Categories option under the Payroll Settings tab (located under Pay Run Settings).
+ Add is chosen, and the deduction’s name is entered.
+ The Deduction Type and any additional pertinent fields should be filled out before choosing Save.

How Do I Deduct Individual 401(K) Contributions?

Your earned wages are reported on IRS Form W-2. Report your individual Solo 401k contribution on your W-2 as an employee of the company by entering it in box 12. The compensation or deductions from your taxable income that appears in Box 12 can take many different forms.

How Do 401k Deductions Operate?

Before federal and state income taxes are deducted, employees can set aside money through tax-deferred 401(k) plans. You currently save taxes with these plans. Your taxable income is decreased by money taken from your take-home pay and invested in a 401(k), which results in a reduction in your current tax liability.

In QuickBooks Online, How Do I MAP Payroll Deductions?

This is how:
+ Activate the Gear icon.
+ Choose Payroll Settings from the Your Company menu.
+ Click Accounting on the Preferences menu.
+ Select Edit under the heading Paycheck and payroll tax payments.
+ Choose the account you created in your Chart of Accounts from the Bank account drop-down menu (COA).
+ Click Continue. Then, click Done.

In QuickBooks Online, How Do I Enter Employer Contributions?

Click the employee’s name twice. Choosing Payroll Info. Add the contribution line item to the Additions, Deductions, and Company Contributions section. Put in the maximum contribution amount per period.

Do Contributions To A Solo 401(K) Count As Business Expenses?

All contributions you make to a Solo 401(k) plan as the “employer” are tax deductible (up to IRS maximums) for your company, and any earnings grow tax-deferred until withdrawn. However, you have more flexibility for contributions you make while acting as an “employee.”

Speak to A Specialist about QuickBooks Software

Headache🥺. Huh, Save time & money with QuickBooks Support 24×7 @ +1/, we provide assistance to those who face problems while using QuickBooks (Support all U.S. & Canada Editions)

--- Support - We provide solutions for the following QuickBooks (Pro, Premier, Accountant, Enterprise, Payroll, Cloud) ---

  • Error Support
  • Data Import
  • Data Conversion
  • Payment Solutions
  • Upgradation
  • Payroll Support
  • Data Export
  • Software Integration
  • QuickBooks Printer Support
  • Complete QuickBooks Solutions
  • Tax-Related Issues
  • Data Damage Recovery
  • Installation, Activation Help
  • QuickBooks Windows Support

Disclaimer : We are a third party agency working on providing authentic support and full fledged services for for accounting software QuickBooks 2018 version. It is one of… Read more