Is an employee salary reduction contributions under a section 408 simple plan reduce your income?

[liladawson]

Can a 408p reduce your taxed income

[dmertz · Accepted solution]

If you are an employee who receives a W-2, your employer reduces the amount of wages in box 1 by the amount of your traditional SIMPLE elective deferrals.  It does not get subtracted from income a second time on your tax return.  So yes, deferring income to the SIMPLE plan reduces current year taxable income.  (Roth SIMPLE contributions do not reduce taxable income.)

If you are self-employed and make SIMPLE IRA contributions that are deductible on Schedule 1 as a self-employee retirement deduction, this does reduce AGI.