8880 Question

[photoman]

I have taxpayer that only received 1099R income and ssa social security income. My software gives them a credit if they put money in a regular IRA. I used the number 2000 put in regular ira and it gives a credit on line 50 of 1040 of 953.00. I was thinking that this type of income would not allow a credit .
Am I missing something.

[RitaB]

I would guess

I would guess that your software does not automatically enter retirement distributions as "certain distributions" on line 4 of Form 8880. Mine doesn't.

[Koss]

Different Question

Forget about the credit on Form 8880 for a minute.

If your client has no earned income, then I don't understand why he is even eligible to contribute to an IRA.

The maximum contribution to an IRA is the lesser of $5000 or the taxpayer's earned income.

Is your client disabled, and getting a pension that is considered to be disability, because he is below the retirement age for the pension plan?

If so, then the pension distribution might be treated as earned income.

What's the distribution code on the Form 1099-R?

BMK

[RitaB]

Ah ha

Forget about the credit on Form 8880 for a minute.

If your client has no earned income, then I don't understand why he is even eligible to contribute to an IRA.


BMK

Yes, you are a genius, Koss. I didn't even catch that part.

[photoman]

taxpayer is 67 and spouse is 65. 1099R income is to taxpayer and code 7. Both taxpayer and spouse get soc security.

[Koss]

Then I'm stumped

I don't understand why your software is calculating a credit on Form 8880. I also don't understand why it is allowing an IRA contribution at all. Unless it is treating it as a nondeductible contribution...

BMK

[Chief]

What software

are you using? Would be interesting to know.

[photoman]

It does say non deductible. If so would this perhaps apply and give the 8880 credit.

[photoman]

This is Drake Software and yes it is treating it as non-deductible. Can you do that put 2000 in and then get an 8880 credit of 953.00

[dtlee]

As I understand it, even nondeductible contributions require there to be some income that is considered compensation.

Some software does not stop you from entering an IRA contribution just because it is not allowed. For example, Drake allows you to enter it but generates a message telling you that the funds must be removed or a penalty computation must be made.

[photoman]

Thanks to all the responses. I understand how to handle this now.

Ron

[ChEAr$]

Thanks to all the responses. I understand how to handle this now.

Ron

Good! Just so he doesn't get the RIC.