As for the IRA stuff, I don't entirely understand it
If your adjusted gross income is $18,250* or less and you contribute at least $2000 to an IRA, then you get a tax credit (the Saver's Credit) of $1000 (or your total tax liability, whichever is less).
I'll run through an example (follow along on IRS forms
1040 and
8880*):
For this example, assume you file as 'single,' make $20K in W-2 income (and nothing else), can afford to contribute $2,000 to an IRA, have one exemption, take the standard deduction, and have no other complications.
Form 1040:
Line 7 (wages) and 22 (total income): | $20,000 |
Line 32 (IRA deduction) and 36 (total "above-the-line" deductions): | $1750 |
Line 38 (adjusted gross income): | $18,250 |
Line 40 (standard deduction): | $6,200 |
Line 42 (exemptions): | $3,950 |
Line 43 (taxable income): | $8,100 |
Line 44 (tax): | $813 |
Line 51 (saver's credit -- same as 8880 line 12): | $813 |
Line 63 (total [net] tax): | $0 |
Form 8880:
Line 1 (IRA contributions): | $2,000 |
Line 5 (net contributions): | $2,000 |
Line 6 (contributions vs. limit): | $2,000 |
Line 8 (adjusted gross income -- same as 1040 line 38): | $18,250 |
Line 9 (multiplier): | 0.5 |
Line 10 (gross credit): | $1,000 |
Line 11 (limitation based on tax liability -- same as 1040 line 44, in this case): | $813 |
Line 12 (net credit): | $813 |
As you can (hopefully) see, making sufficient IRA contributions saves you
not just the amount of the contribution multiplied by your marginal tax rate, but that
plus $813. If you put the money in an HSA instead your AGI would be $18,000 but you would not get the Saver's Credit, so you'd have to pay $788 in tax.
Note that the IRA deduction on 1040 line 32 is different from the IRA contributions on 8880 line 1. This is because, of the $2000 total, $1750 would be traditional and $250 would be Roth. Once you get to $0 tax liability, additional traditional IRA contributions can't lower it any further, so you might as well make any IRA contributions above and beyond that as Roth contributions so you don't have to pay any tax on them
at all (neither now nor later!). That's the same benefit you'd get from an HSA, without having to save receipts.
(* I'm mixing a 2015 form 8880 with a 2014 form 1040, so some of the limits might be a little off.)