Do simple 401k contributions reduce income for purposes of passive activity phase out?
Do simple 401k contributions reduce income for purposes of passive activity phase out?
I have some real estate losses and currently over the $150k income limit. My understanding per https://www.irs.gov/pub/irs-pdf/p560.pdf was the IRA contributions would not reduce my income for purposes of getting to deduct my losses. That said, I was confused if a Simple 401k would.
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Re: Do simple 401k contributions reduce income for purposes of passive activity phase out?
Whether you're referring to a SIMPLE IRA or Qualified plan (typically 401k), my understanding is yes those are true pre-tax contributions which will reduce your income.
Contrasted against Traditional IRA contributions as you pointed out, which may not be tax deductible above certain income limits.
Contrasted against Traditional IRA contributions as you pointed out, which may not be tax deductible above certain income limits.
Re: Do simple 401k contributions reduce income for purposes of passive activity phase out?
I think what you are looking for is contained in form 8582 line 7, your MAGI. If you look in the instructions for this line, you will see that deducted traditional IRA get added back to AGI for your MAGI, but contributions to qualified plans like a 401k do not get added back.