Retirement Saver's Credit

[Gretel]

Client is 59 and can take full advantage of the credit because of "perfect" income.

Am I right that if contributed to IRA in 2006 for 2005 he can take distribution in 2007 hence pocketing the amount of the credit and just pays income tax on distribution?

Sounds almost too good to be true but I can not find anything against it.

[DaveO]

That's right. Isn't the savers credit great? I believe this credit is expiring this year unless renewed by Congress.

[Bill Tubbs]

Am I right that if contributed to IRA in 2006 for 2005 he can take distribution in 2007 hence pocketing the amount of the credit and just pays income tax on distribution?

Note: if this credit gets extended and he does take distribution in 2007, that will affect 3 years of future credit.

Also, sometimes if you play the amount he contributes to a Trad IRA for 2005, you could drop his income just enough to change him from the 10% - 20% or 20% - 50% credit. I've hit a couple where by contributing $1000 to TRAD IRA, he ended up getting about $1200 more of a refund! Now ain't that sweet!

Bill

[Gretel]

Yep

It's sweet. My client has to contribute $1,800 and the government pays almost $1,200 of it.