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Administrator Guide
Last Updated: 2025-11-14
Example: Define a 401(k) Pre-Tax Deduction (USA)

Example: Define a 401(k) Pre-Tax Deduction (USA)

John earns 114,000 USD/year, or 9,500 USD/month. John elected to contribute the maximum of 20% of their monthly salary to their pre-tax 401(k) retirement savings. You create a deduction for the 401(k) employee pre-tax contribution, subject to these current IRS limits:
  • Employee elective deferrals.
  • Employee and employer total contributions.
This is a basic 401(k) deduction example. We strongly advise you to take into account recent amendments to the tax code, specifically the Secure 2.0 Act. Please consult with your legal counsel and refer to your 401(k) Plan Documents for the exact requirements pertaining to your specific deduction configuration.
Your company created a 401(k) retirement savings plan.
Create a
Retirement Savings Eligible Wages
 pay component group.
Create a
Retirement Savings Eligible Wages > 0
 value comparison calculation.
Create these pay accumulations if there's another employee deduction, or an employer match:
  • 401(k) Total Contributions: EE [USA]
  • 401(k) Total Contributions: EE + ER [USA]
Security:
Set Up: Payroll (Calculations - Payroll Specific)
 domain in the Core Payroll functional area.
  1. Access the
    Create Deduction
     task.
  2. Enter these settings:
    Option
    Setting
    Name
    401(k) Pre-Tax
    Code
    401k
  3. Enter these settings on the
    Effective Dated
     tab:
    Option
    Setting
    Effective Date
    Current date
    Run Category Eligibility
    Bonus
    Regular
    Worker Eligibility
    Row 1:
    • Retirement Savings Eligible Wages > 0
    • Benefits: Benefit Plan Percentage Exists (and <> 0)
    Workday recommends you review your benefit plan configuration for worker elections.
    Calculation
    Base (unprorated) * Percent
    Recalculate during Retro
    Workday recommends that you don't select this check box for percentage-based deductions.
  4. Enter these settings in the
    Related Calculations
     grid:
    Related Calculation
    Override Calculation
    Base (unprorated)
    Retirement Savings Eligible Wages
    Percent
    Benefits: Benefit Plan Percentage
  5. Enter these settings in the
    Limits
     grid (below the
    Related Calculations
     grid):
    Value
    Balance Period
    Based On
    Elective Deferral Annual Limit for 401(k), 403(b), 457(b), and 408(k) SEP Plans
    YTD - Current Calendar Year (based on Payment Date)
    401(k) Total Contributions: EE [USA]
    IRS Annual Contributions Limit Value (only looks at the specified dollar value / not at annual compensation)
    YTD - Current Calendar Year (based on Payment Date)
    401(k) Total Contributions: EE + ER [USA]
  6. Enter these settings on the
    Non-Effective Dated
     tab:
    Option
    Setting
    Groups
    Federal Taxable Reduction [USA]
    Pre Tax Deductions
    State Withholding Taxable Reduction [USA]
    Withholding Order (All): Retirement Plan Deductions [USA]
    Benefit Plans
    Select the relevant benefit plan.
  7. (Optional) Once you’ve created a
    401(k) Roth
     deduction, update the
    401(k) Total Contributions: EE [USA]
     pay accumulation:
    1. Access the
      Edit Pay Accumulation
       task.
    2. Select these
      Deductions
       on the
      Add and Subtract Calculations
       tab:
      • 401(k) Pre-Tax
      • 401(k) Roth
    3. Access the
      Calculate/Display Exceptions
       tab and enter these settings:
      Option
      Description
      Option
      Calculate and display only if specified Earning/Deduction exists
      Specified Earnings/Deductions
      401(k) Pre-Tax
      401(k) Roth
  8. (Optional) Once you’ve created a
    401(k) Employer Match
     deduction, update the
    401(k) Total Contributions: EE + ER [USA]
     pay accumulation:
    1. Access the
      Edit Pay Accumulation
       task.
    2. Select these
      Deductions
       on the
      Add and Subtract Calculations
       tab:
      • 401(k) Pre-Tax
      • 401(k) Roth
      • 401(k) Employer Match
    3. Access the
      Calculate/Display Exceptions
       tab and enter these settings:
      Option
      Description
      Option
      Calculate and display only if specified Earning/Deduction exists
      Specified Earnings/Deductions
      401(k) Employer Match
Workday deducts the 401(k) pre-tax employee contribution up to the current IRS elective deferral limit.
His payroll result for the first month displays the result for his 401(k) pre-tax contribution on the
Gross to Net
 tab:
Pay Component
Amount (USD)
YTD (USD)
Related Calculation
Amount (USD)
401(k) Pre-Tax
1,900
1,900
Base (unprorated)
9,500
Percent
0.20
The 2021 elective deferral annual limit is 19,500 USD. John's 401(k) pre-tax deduction exceeds the annual limit in the eleventh month, so Workday takes the final pre-tax deduction of 500 USD in the eleventh month.