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I believe that it does. If you are making $35,000 and manage to sock away $11,000 into a 401(k), so that your taxable income is only $24,000, this may very well drop you into a lower tax bracket (don't know the tax schedule off the top of my head).

JAFO is correct. When your income goes from a lower bracket to a higher bracket, only the portion of income above the income limit of the lower bracket is taxed at the higher rate, not the entire income.


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