Savers Credit Tax Question with Roth Distribution

[mattsd13]

Was wondering if anyone here could shed some light on my question/confusion.

In 2016 we qualified for the Earned Income Credit essentially maxing out each of our 401ks through work.  We supplemented our income throughout the year by withdrawing 21,500 from one of our roths.  This withdrawal was ONLY the contributions made into the plan so no early withdrawal penalties, fees, etc.

Here in lies my question:

I want to say that we qualify for 338 dollars in the savers credit.  However, Turbo Tax says otherwise.  It takes into account the withdrawal of 21,500 from the Roth and then negates the savers credit.  Of course this could be correct, but I was hoping someone here may have some insight.

Would those withdrawals of contributions only have that affect? I did not take advantage of the savers credit when I made the contributions INTO the Roth in prior years (not sure if that even matters).

Any help would be appreciated.

Thanks

[VladTheImpaler]

The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income.

Taken from:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit


2017 Saver's Credit
Credit Rate                   Married Filing Jointly   Head of Household   All Other Filers*
50% of your contribution    AGI < $37,000          AGI < $27,750           AGI < $18,500
20% of your contribution   $37,001 - $40,000   $27,751 - $30,000   $18,501 - $20,000
10% of your contribution   $40,001 - $62,000   $30,001 - $46,500   $20,001 - $31,000
0% of your contribution   more than $62,000   more than $46,500   more than $31,000

[teen persuasion]

Yeah, look at form 8880, I believe.  Any withdrawals are subtracted from new contributions before figuring the credit on the balance, if any is left.  I just noticed this a few months ago - it completely scuttled a plan I had for a slide to early retirement.  I had wanted to have DH quit work while I continued part time.  The thought was begin Roth conversions from tIRA, I make Roth IRA contributions for both of us from part time earnings enough to capture Saver's credit to offset taxes on conversion, and withdraw past Roth contributions to cover remaining expenses.  Unfortunately it won't work.

Even uglier - any withdrawals are included in total on both spouses' sides of the equation, and they include I believe all withdrawals from the past 3 (I believe) years!  So a withdrawal can follow you for a while, making you ineligible for the credit for years.