Does contributing to a deferred compensation plan lower Adjusted Gross Income (AGI)?

Question

I ask this because I want to contribute to a Roth IRA account until I retire. I will make $95k in a couple of years if I stay with my current employer and was curious if contributing a pre-tax amount (to a 457b account available through my employer) to make my federal gross income $90k (for example) will be good enough to continue to contribute to a Roth IRA. Between the 457b plan, the Roth IRA and my pension (yeah I'm a government employee), I'd like to retire when I'm 59.5 or 60, so I am not interested in a traditional IRA. If possible, please back up your answer with sources. Thank you kindly.

Answer 1

Yes, deferred compensation plans do indeed lower AGI, as I know from personal experience. I am looking at my 2006 W2 form right now. Box 1 is "wages, tips, other compensation", which is what you report on your federal tax return. The amount in box 1 has been reduced by the amount of deferred compensation in box 12, code G. Boxes 3 (social security wages) and 5 (medicare wages and tips) contain the entire salary, not reduced by the deferred compensation amount. That's because money put into deferred compensation accounts are subject to Social Security and Medicare taxes, but not to Federal income tax.

Answer 2

Yes, contributing to a 457b or 401K or 403B will lower your AGI
Publication 590 IRS.gov
Also I have been a CPA and do payroll