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Administrator Guide
Last Updated: 2025-05-30
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.
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.