Author Topic: Earned too much for Child Tax Credit- Can I contribute to 401k retroactively?  (Read 385 times)

Keith Miller

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My total income was 121k, so I'm 11k over the child tax credit cut-off. If I contributed 11k to my 401k retroactively, would that lower my income enough to get the credit? (Or, could I open up an IRA instead?) I'm just wondering if anyone knows of a way to get that Child Tax Credit, we just had a kid in December and it seems like such a waste to lose it.
« Last Edit: February 14, 2018, 12:29:58 PM by Keith Miller »

MDM

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Unless you are self employed with a solo 401k, contributions are counted for a calendar year, unlike the way IRAs work.

terran

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You can still open and fund an IRA for 2017.

Did you or your employer contribute anything to your 401k in 2017? If so, then you probably aren't eligible to deduct IRA contributions at your income level: https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work

If neither you nor your employer contributed to your 401k, and you do not have a pension then you probably are eligible: https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work

MDM

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My total income was 121k, so I'm 11k over the child tax credit cut-off. If I contributed 11k to my 401k retroactively, would that lower my income enough to get the credit? (Or, could I open up an IRA instead?) I'm just wondering if anyone knows of a way to get that Child Tax Credit, we just had a kid in December and it seems like such a waste to lose it.
At $121K you should still get a $450 credit.  It doesn't drop to zero at $110,001 income.

Probably best to do "what if...?" with your commercial tax software of choice.  You can do some quick checking with the 2017 version of the case study spreadsheet, but that won't enforce tIRA deductibility limits, so caveat user.

boarder42

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Better question is why it wasn't already maxed with that income level and the ability to "retroactively" fund. You can't BTW

Keith Miller

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Terran: My wife and I contributed $8k to our 401k, and I have a teacher pension. Does this mean that I can’t reduce my income level by contributing to an IRA? Is there any other way to reduce my income?

MDM: I thought the child tax credit phased out over incomes of $120k, and Turbotax specifically said that I had earned too much to get the credit.

Boarder42: Fair question, the real reason was that we needed lots of cash for this year, we paid off the last $40k that we owed in student loans, and saved up enough for a 20% down payment on a house, we’re moving across the country to be with family for our new kid.

My basic question is whether there is any way to reduce my income? Does anyone know of a way besides funding an IRA?

MDM

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MDM: I thought the child tax credit phased out over incomes of $120k, and Turbotax specifically said that I had earned too much to get the credit.
It starts to phase out at $110,000 for married couples filing jointly. For each $1,000 of income above the threshold, your available child tax credit is reduced by $50.

Thus if your AGI is $121K, the CTC is reduced by ($121K - $110K)/1000 * 50 = $550.  $1000 - $550 = $450.