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Greetings Fools!

I have a question for those who are familiar with filling out tax Form 1040. On line 25, IRA deduction (see page 26), can someone explain to me how the 401K contributions are computed here? Let's say for instance my total income is about 42K and I have nothing for lines 23, 24, 26-34 on the 1040. Let's also say that I've contributed about 2K for 2005 (started my 401K plan just recently). On the 1040 manual, page 27, showing the IRA Deduction Worksheet - http://www.irs.gov/pub/irs-pdf/i1040.pdf - how would this worksheet be filled out? I'm single and assume that I am covered by a retirement plan.

Thanks!

Financeguy82
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While reading one of the tax-related articles, I came across this paragraph:

"Don't report too much wage income: If you participate in a deferred-compensation plan at your place of employment -- 401(k), 403(b), etc. --remember to report as wages only the amount reported to you in Box 1 of your W-2 form. Don't report the salary that you actually earned."

If I read this correctly, does that mean that I don't have to fill out the IRA deduction line on the 1040? We don't have to report the 401K contributions as wages/salaries?

Financeguy82
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The IRA is different from the 401K. Your 401K contributions are pre-tax. Needless to say, that would not go on your 1040. It appears you do not have a traditional IRA.

Donna
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Your second post is correct. When you receive your W2 your 401K contributions will not be included in the total in Box 1, your total wages.
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We don't have to report the 401K contributions as wages/salaries?

Yup. That's the whole point of a pre-tax retirement plan. The money you deducted from your paycheck and sent to a 401k is pre-tax. Your total income for tax purposes is after that.

There are some other pre-tax deductions too. If you have a medical/child care flexible savings account that comes out before taxes. There are also commuting allowances that some employers make available; in the case of my husband's work we pay for his subway passes with pre-tax dollars.

Take a close look at your paystub. See how there's one amount for total income, and another amount for Federal income? This sort of thing is what makes that difference.

- Megan
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