How do 401(k) contributions affect AGI?

When it comes to tax planning, understanding how 401 (k) contributions impact AGI is essential. Lowering your AGI may reduce your tax bill and could increase your eligibility for various tax benefits. Keep in mind that contributions made to pre-tax 401 (k) accounts will reduce your AGI in a given year, but Roth 401 (k) contributions will not.

Do Roth 401(k) contributions reduce AGI?

Keep in mind that contributions made to pre-tax 401 (k) accounts will reduce your AGI in a given year, but Roth 401 (k) contributions will not. Moreover, this understanding can help you make informed decisions about your retirement contributions and tax planning strategies.

Do 401(k) contributions reduce taxable income?

Contributing to a pre-tax retirement account, such as a 401 (k) or a traditional IRA, is one of the most effective ways to reduce your AGI. While 401 (k) contributions are not considered above-the-line deductions, the money you contribute to these accounts ultimately lowers your taxable income, reducing the amount of income subject to taxation.