Author Topic: Retirement Savings Tax Credit  (Read 3042 times)

c12mintz

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Retirement Savings Tax Credit
« on: February 07, 2014, 04:30:36 PM »
Hi all,

I have a questions about Form 8880- the Retirement Savings Tax Credit.

For those of you who don't know about it, you should, it's awesome for lower-income folks who want to save into their IRA or 401K.

Basically, if you make less than (AGI) $29.5k or $59k (married filing jointly), you can get an ADDITIONAL credit for IRA contributions, up to $1000 for single and $2000 joint

However, there are some limits:

--You cannot be a full-time student
--You cannot be a dependent
--Credit scales upward on income (50% for lowest tiers, so $2000 to IRA gets you $1k back-- 10% on highest tiers)

But anyways, beyond spreading the good word about a wonderful tax credit, I also have a question:

The tax credit allows  the person to file and also list their spouse's contributions.

However, I was a 'technically' a full-time student during 2013 so I don't qualify, BUT my spouse wasn't.

Can she claim the credit still? Can she include me as well under 'spouse?'

I'm pretty sure the first is 'yes' and the second is 'no,' but I'm not sure...? Do we still fit under the 59k limit?


seattlecyclone

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Re: Retirement Savings Tax Credit
« Reply #1 on: February 07, 2014, 05:17:31 PM »
From the form's instructions:

Quote
Who Can Take This Credit

You may be able to take this credit if you, or your spouse if filing jointly, made
(a) contributions (other than rollover contributions) to a traditional or Roth IRA,
(b) elective deferrals to a 401(k), 403(b), governmental 457, SEP, or SIMPLE plan,
(c) voluntary employee contributions to a qualified retirement plan as defined in section 4974(c) (including the federal Thrift Savings Plan), or
(d) contributions to a 501(c)(18)(D) plan.

However, you cannot take the credit if either of the following applies:
• The amount on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37, is more than $29,500 ($44,250 if head of household; $59,000 if married filing jointly).
• The person(s) who made the qualified contribution or elective deferral
(a) was born after January 1, 1996,
(b) is claimed as a dependent on someone else’s 2013 tax return, or
(c) was a student.

I am not a tax advisor. I am especially not your tax advisor.

That said, the language says the "person who made the contribution" is ineligible for the credit based on their status as a student. If I were in your situation, I would not hesitate to claim the credit for any retirement contributions that my non-student spouse made into her retirement accounts, but I would not claim the credit for my own retirement contributions.

c12mintz

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Re: Retirement Savings Tax Credit
« Reply #2 on: February 07, 2014, 05:22:01 PM »
Thanks Seattle, that's what I was thinking.

It kinda hurts us full-time students who also have a full-time job, but I suppose it makes sense due to other academic offsets.

Now if only she put as much into IRAs as I did! ;-)

We just got married last year though, next year we'll be contributing even more, but I graduate in May 2014, so I'll still have the 1/2 issue.

By 2015 (hopefully) we'll make enough that we won't be eligible for the credit, but since it's AGI if you play your 401K right that's a joint income of almost $100k. 


markstache

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Re: Retirement Savings Tax Credit
« Reply #3 on: February 08, 2014, 02:10:30 PM »

However, I was a 'technically' a full-time student during 2013 so I don't qualify, BUT my spouse wasn't.

Can she claim the credit still? Can she include me as well under 'spouse?'


This is how my wife and I claimed last year (credit for her contributions, no credit for mine). You note that your wife does not contribute as much. You can still make tax year 2013 contributions. Could you make a contribution to her account by April 15 to get her up to $2k? The IRS allows filing before making the contribution, as long as it will be made by 4/15.

Standard disclaimers apply.

Cheddar Stacker

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Re: Retirement Savings Tax Credit
« Reply #4 on: February 08, 2014, 02:33:01 PM »
By 2015 (hopefully) we'll make enough that we won't be eligible for the credit, but since it's AGI if you play your 401K right that's a joint income of almost $100k.

This is the correct way to think about it. Another point to that end - if you work in a flexible environment like a startup, a small business, a liberal type place, you might be able to negotiate other perks that could keep your AGI lower.

Example - Our 401K has a safe harbor contribution. Because of this, and the way the plan is written, it allows for a certain amount of discrimination at the discretion of management (I'm in management so privy to this info). I can have employer increase my safe harbor contribution (for just me, or anyone else I decide) from 3% of wages to at least 4% without disqualifying the plan. We need to go through certain calculations to accomplish this, and based on the calculations we might be able to go up to 5% or 6%, but it depends on many factors.

If I decide to increase the employer contribution for me, I simply decrease my wages by the same amount. Sounds like a net zero effect, so why do it you may ask? Three reasons: 1) Less wages in Box 1, Box 3, and Box 5 of my W-2 which reduces AGI and taxable income, 2) Reduced Box 3 & 5 on W-2 means reduced SS and Medicare Tax for you, 3) Most importantly for your negotiating power, Reduced Box 3 & 5 on W-2 means reduced SS and Medicare Tax for your employer.

This may not work for any of you, but I bring it up as just one example. Any reduction in wages helps both you and employer because of payroll taxes. Consider suggesting 100% health insurance premiums paid for by employer in exchange for reduced wages. Can employer pay your cell phone bill? Can employer pay directly for your transportation costs? These could all reduce your AGI while simultaneously increasing your bottom line, and your employer's bottom line.