Form 8880

[oceanlovin'ea]

I have a client who puts money into 401K regularly. But this year he took a distribution from his ROTH IRA. The 1099R was coded J. The money had been in the account for about 10 years. It is not taxable. But he doesn't get the retirement savings credit because he took money from the ROTH. Is that correct?

I have not ever had that happen before so I just wanted to make sure I wasn't missing something. I could see if it was taxable distribution but it is not taxable but the instructions say to enter amount for distribution from regular or Roth IRA.

Thanks.

Linda, EA

[ChEAr$]

I have a client who puts money into 401K regularly. But this year he took a distribution from his ROTH IRA. The 1099R was coded J. The money had been in the account for about 10 years. It is not taxable. But he doesn't get the retirement savings credit because he took money from the ROTH. Is that correct?

I have not ever had that happen before so I just wanted to make sure I wasn't missing something. I could see if it was taxable distribution but it is not taxable but the instructions say to enter amount for distribution from regular or Roth IRA.

Thanks.

Linda, EA

Looks like the purpose of the RIC is to encourage savings, and there, for once, congress got it right.
(did I just say that? ZOUNDS>)

[FEDUKE404]

It's an offset

If you are able to receive Form 8880 benefits for funds placed into a Roth IRA, it is at least almost logical that if you also (in the same year or specified prior years) took funds from a Roth IRA then there would need to be an adjustment.

Fairly close to the "you can't have your cake and eat it, too" concept.

Be sure you carefully read the IRS instructions for line 4 of Form 8880. There are a lot of side issues that could become a factor in any number entered on that line.

FE

[Burke]

I have a client who puts money into 401K regularly. But this year he took a distribution from his ROTH IRA. The 1099R was coded J. The money had been in the account for about 10 years. It is not taxable. But he doesn't get the retirement savings credit because he took money from the ROTH. Is that correct?

I have not ever had that happen before so I just wanted to make sure I wasn't missing something. I could see if it was taxable distribution but it is not taxable but the instructions say to enter amount for distribution from regular or Roth IRA.
Thanks. Linda, EA

And not only that, it counts any retirement distribution from an IRA, 401(k), 457, SEP, SIMPLE, etc. since 1/1/09 for either spouse in the calculation for this year's tax return credit.

[DaveO]

It also includes distributions with a code 4 issued upon death of the owner.

[Nashville]

Absolutely!

And not only that, it counts any retirement distribution from an IRA, 401(k), 457, SEP, SIMPLE, etc. since 1/1/09 for either spouse in the calculation for this year's tax return credit.

Burke is correct. In your original post, assume he had NOT taken from the Roth, but his wife took out of HER account. Trashes the credit just the same as if HE had done it.

[Roland Slugg]

There is a flip side to this which is a pretty neat trick. A taxpayer who otherwise qualifies can make a $2,000 contribution into his Roth IRA on April 15, 2013, take the $2,000 out on April 16, 2013, and save up to $1,000 tax on his 2012 federal return. A married couple can put in $4,000 and save up to $2,000.

So I'm not so sure that congress "got it right."

[ddoshan]

There is a flip side to this which is a pretty neat trick. A taxpayer who otherwise qualifies can make a $2,000 contribution into his Roth IRA on April 15, 2013, take the $2,000 out on April 16, 2013, and save up to $1,000 tax on his 2012 federal return. A married couple can put in $4,000 and save up to $2,000.

So I'm not so sure that congress "got it right."

Not sure you can do that. I believe that one of the requirements for form 8880 Savers Credit is that there will be no distributions by the filing deadline including extensions or something to that effect which, I suspect, would rule out the April 15th - April 16th scenario