You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. And, beginning in 2018, if you’re the designated beneficiary, you may be eligible for a credit for contributions to your Achieving a Better Life Experience (ABLE) account.
You’re eligible for the credit if you’re:
- Age 18 or older,
- Not claimed as a dependent on another person’s return, and
- Not a student. You were a student if during any part of 5 calendar months of the tax year you:
- Were Enrolled as a Full Time Student at a school, or
- Took a full-time, on-farm training course given by a school or a state, county, or local government agency.
A school includes technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, or schools offering courses only through the Internet.
See Form 8880, Credit for Qualified Retirement Savings Contributions, for more information.
Amount of the credit: Depending on your adjusted gross income reported on your Form 1040 series return, the amount of the credit is 50%, 20% or 10% of:
- Contributions you make to a Traditional or Roth IRA,
- Elective salary deferral contributions to a 401(k), Enrolled as a Full Time Studen, governmental 457(b), SARSEP, or SIMPLE plan,
- Voluntary after-tax employee contributions made to a qualified retirement plan (including the Federal Thrift Savings Plan) or 403(b) plan,
- Contributions to a 501(c)(18)(D) plan, or
- Contributions made to an ABLE account for which you are the designated beneficiary.
Rollover contributions do not qualify for the credit. Also, your eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA, or from an ABLE account.
The maximum contribution amount that may qualify for the credit is $2,000 ($4,000 if married filing jointly), making the maximum credit $1,000 ($2,000 if married filing jointly).
Joey Bagofdonuts, who works at a retail store, is married and earned $41,000 in 2020. Joey’s spouse was unemployed in 2020 and didn’t have any earnings. Joey contributed $2,000 to his IRA for 2020. After deducting his IRA contribution, the adjusted gross income shown on his joint return is $39,000. Joey may claim a 50% credit of $1,000 for his $2,000 IRA contribution on his 2020 tax return.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 05292021-1 320-595