Do 401k Contributions Reduce MAGI? Yes, Here's How

Do 401k contributions reduce MAGI? Yes, traditional 401(k) contributions reduce your Modified Adjusted Gross Income (MAGI) by lowering your AGI first.

If you're near an income threshold for Roth IRA eligibility, Medicare surcharges, or ACA credits, this matters a lot. Use our pay stub generator to document your income accurately.

This article describes in detail exactly how it works.

Key Takeaways

• Traditional 401(k) contributions reduce both your AGI and MAGI by removing pre-tax dollars from taxable income.

• Roth 401(k) contributions do NOT reduce MAGI because they use after-tax dollars.

• The 2025 401(k) contribution limit is $23,500 ($31,000 if age 50 or older).

• Lower MAGI can unlock Roth IRA eligibility, ACA premium credits, and reduced Medicare surcharges.

• 401(k) contributions are not "Added back" when calculating MAGI, which is why they reduce it.

How Do 401k Contributions Reduce MAGI?

MAGI (Modified Adjusted Gross Income) starts with your AGI and adds back certain deductions. AGI includes 401k as a pre-tax reduction. Traditional 401(k) contributions lower your gross income before taxes are applied. Since 401(k) contributions aren't added back when calculating MAGI, your MAGI also decreases.

What Is Adjusted Gross Income (AGI)?

AGI is your total gross income minus above-the-line deductions. Does AGI include 401k contributions? No. Because traditional 401(k) contributions reduce your gross income before taxes, they lower your AGI dollar for dollar.

These deductions also include student loan interest, HSA contributions, and self-employed health insurance premiums. Your AGI appears on Line 11 of IRS Form 1040. For a full breakdown, see our guide on what is adjusted gross income and how to calculate AGI from a W-2.

What Is MAGI?

MAGI is your AGI with specific items added back. Common add-backs include:

• Traditional IRA contributions

• Passive income or loss

• Rental losses

• Tax-exempt interest income

• Non-taxable Social Security benefits

Traditional 401(k) contributions aren't on the add-back list. That's why contributing to a traditional 401(k) reduces your MAGI.

Do 401k Contributions Reduce MAGI? The Mechanism Explained

Yes. Traditional 401(k) contributions are deducted from your paycheck before taxes, which reduces your taxable wages and your AGI. Because MAGI is derived from AGI and 401(k) contributions aren't added back, your MAGI also decreases by the same amount. Roth 401(k) contributions don't reduce MAGI because they use after-tax dollars.

Example: You earn $75,000 and contribute $15,000 to a traditional 401(k):

• Gross Income: $75,000

• 401(k) Contribution: -$15,000

• AGI: $60,000

• MAGI: $60,000

That $15,000 reduction can push your MAGI under an income threshold and unlock tax benefits.

Does 401k contribution reduce AGI? Yes, every dollar you put into a traditional 401(k) reduces your AGI by that same dollar.

When you ask, "Does 401k reduce MAGI?", the answer flows directly from AGI. This is because 401(k) contributions aren't added back. Your MAGI falls by the same amount.

Does MAGI Include 401k Contributions for Roth vs. Traditional?

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No, traditional 401(k) contributions aren't included in MAGI. They reduce your AGI and aren't added back. Roth 401(k) contributions are already counted in your income since they use after-tax dollars, so they don't reduce MAGI.

Does MAGI include 401k contributions from a Roth account? No reduction occurs. But Roth accounts still offer tax-free withdrawals in retirement, making them valuable even without a current MAGI benefit.

The difference between W-2 employees and 1099 contractors can also affect which retirement accounts you can contribute to.

Why Reducing MAGI Matters

Your MAGI determines your eligibility for several valuable tax benefits. Key 2025 thresholds:

• Roth IRA Phaseout: $150,000 to $165,000 (single) and $236,000 to $246,000 (married filing jointly)

• Medicare IRMAA Surcharges: Begin at $106,000 (single) or $212,000 (married)

• ACA Premium Tax Credits: Available for MAGI between 100% and 400% of the federal poverty level

• Traditional IRA Deductibility: Phases out at $79,000 (single, with a workplace plan) in 2025

If you're near any of these thresholds, maximizing traditional 401(k) contributions is one of the most direct ways to reduce MAGI and improve your eligibility. Your pay stub's FIT taxable wages section also reflects how pre-tax deductions lower your taxable income.

If you need accurate income documentation, our pay stub templates make it easy to create professional records.

How Much Can You Contribute in 2026?

The 2025 401(k) contribution limit is $23,500. If you're age 50 or older, you can contribute an additional $7,500, bringing your total to $31,000. These limits are expected to stay the same for 2026.

Employer matching contributions don't count toward your personal limit and don't affect your MAGI calculation. If you're self-employed and use a 1099 form, you may have access to different retirement account options.

Our 1099 pay stub guide covers what independent contractors need to know.

Other Strategies To Reduce Your MAGI

Other pre-tax accounts work the same way as 401(k) contributions:

• HSA: Up to $4,300 (individual) or $8,550 (family) in 2025, if you have a qualifying health plan

• Traditional IRA: Up to $7,000 ($8,000 if age 50+). Income limits apply for deductibility

• SEP-IRA or SIMPLE IRA: Higher limits for self-employed individuals

• Dependent Care FSA: Up to $5,000 per household

Each reduces your AGI and, by extension, your MAGI. The logic mirrors the question "Do 401k contributions reduce MAGI?" All pre-tax contributions reduce your AGI, which in turn lowers your MAGI.

To understand how these deductions appear on your tax return, see how to calculate your W-2 wages from your pay stub.

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• How to File Taxes with Your Last Pay Stub

To Sum It Up

Traditional 401(k) contributions reduce both your AGI and MAGI because they're taken from your paycheck before taxes and aren't added back in the MAGI calculation. Roth 401(k) contributions don't offer this benefit. The clearest answer to "Do 401k contributions reduce MAGI?" is yes, but only traditional contributions. Understanding this distinction can help you make smarter decisions around retirement savings and income thresholds.

If you're self-employed or need proof of income, use our pay stub creator to create professional pay stubs in minutes.