Code BB on a W-2 form indicates what type of contributions?

Code BB on a W-2 form specifically represents designated Roth contributions to a 403(b) plan. This is a type of retirement plan often available to employees of public schools and certain tax-exempt organizations. Contributions made under this option allow employees to contribute after-tax income to their retirement plan, which can grow tax-free and qualified distributions are also tax-free.

The presence of this code indicates that the contributions are made on a Roth basis, which is distinct from traditional pre-tax contributions. This is significant because, unlike traditional contributions, Roth contributions do not provide an immediate tax deduction; however, they do offer tax-free growth and withdrawals during retirement, provided certain conditions are met.

Understanding this distinction is crucial for employees participating in such plans and for tax professionals who are helping clients prepare their tax returns. Knowing how contributions are taxed and reported can affect tax planning strategies, especially for individuals aiming to maximize their tax-efficient retirement savings.