A 401(k) plan is arrangement that permits an employee to elect to have the employer contribute part of the employee's cash wages to a retirement plan on a pretax basis. These deferred wages are not subject to income tax withholding at the time of deferral. The deferred wages are not reflected on Form 1040 since they were not included in taxable wages of box 1, Form W-2. However, they are included as wages subject to social security, Medicare and federal unemployment taxes. The amount an employee can elect to defer is limited. The maximum amount of deferral for tax year 2003 is $12,000 for all 401 (K) plans in which the employee participates. Employees age 50 or over may be eligible to make additional catch-up contributions of up to $2,000 in 2003.

References:

• Publication 575, Pension and Annuity Income
• Publication 560, Retirement Plans for Small Business
• Tax Topic 424, 401(k) plans

The answer to this question depends on your type of retirement plan. If your employer's plan has a separate account for each employee. This is called a defined contribution plan if any amount was contributed or allocated by you or your employer to your account, you are considered covered. It does not matter if you have worked long enough to be vested.

In the other type of plan, the plan employer must make enough contributions (together with earnings) to provide the retirement benefit promised in the retirement plan. This is called a defined benefit plan. In this type of plan, if you meet the minimum age and years of service requirements to participate in your employer's plan, you are considered covered even if you decline coverage. It does not matter if you are vested.

The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The "Pension Plan" box should have a mark in it if you were covered.

References:

• Publication 575, Pensions and Annuity Income.
• Tax Topic 409, Pensions and Annuities.

If you cannot use the Simplified Method, you can ask the IRS to figure the tax-free part of your pension under the General Rule. There is a $90 fee for this service. Publication 939, General Rule for Pensions and Annuities, contains a detailed explanation of the information required to be furnished with your request. Also, refer to Tax Topic 411, Pensions - The General Rule and the Simplified Method, for additional information. If your annuity starting date is after November 18, 1996, you generally cannot use the General Rule for annuity payments from a qualified plan.

References:

• Publication 939, General Rule for Pensions and Annuities
• Tax Topic 411, Pensions - The General Rule and the Simplified Method

No, you do not pay social security and Medicare taxes on retirement income.

References:

• Publication 15, Circular E, Employer's Tax Guide

If you cannot get your employer to pay you your pension money, you should contact the Employee Benefits Security Administration (EBSA) of the Department of Labor. To find out which office you are serviced by, contact (866) 275-7922. Alternatively, you may write them at:

References:

• Employee Benefits Security Administration (EBSA)

If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received. Refer to Tax Topic 410, Pensions and Annuities, for detailed information, or Publication 575, Pension and Annuity Income. For social security and equivalent railroad retirement benefits, refer to Tax Topic 423 or Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

References:

• Publication 575, Pension and Annuity Income
• Publication 915, Social Security and Equivalent Railroad Retirement Benefits
• Tax Topic 410, Pensions and Annuities
• Tax Topic 423, Social security and equivalent railroad retirement benefits