W-2 Box 12 Code AA refers to which type of contributions?

W-2 Box 12 Code AA specifically indicates designated Roth contributions made to a 401(k) plan. These contributions are part of a retirement savings strategy where employees can contribute after-tax dollars to their 401(k) accounts. The benefit of contributing to a Roth account is that the withdrawals made during retirement can be tax-free, provided certain conditions are met. This feature is particularly attractive for individuals who anticipate being in a higher tax bracket during retirement, allowing them to pay taxes on their income now rather than later.

In contrast, the other choices represent different types of contributions or benefits that are denoted by other specific codes. For example, health savings account contributions are reported using different codes, and the same is true for employee salary reductions or employer adoption benefits. Each of these categories has its own set of implications for tax liability and future financial planning, but for contributions coded as AA in Box 12, the focus is solely on designated Roth contributions to a 401(k) plan.