This is a great credit for individuals who qualify and the last poster is correct about muni bonds not counting against your AGI but there example is incorrect. Imagine your gross income was 47,500 -17500(401 k) = 30000 agi. Plus the person put 5500 in Roth, this person would get the 2000 credit to offset federal taxes up to zero. I just wanted to clearify
No, this is false. Check the link I posted before. Retirement savings over $2,000 ($4,000 if married filing jointly) don't count for the credit. If your income lets you claim a 10% credit, that's a maximum credit of 10% of $2,000, or $200. The only way to get a $2,000 credit is if you're married filing jointly, have an AGI below $36k (so you get a 50% credit), have at least $4,000 of retirement savings contributions,
and you otherwise have $2,000 worth of federal income taxes to offset. This is a very rare situation indeed.