Savers Credit Followup

Home Fairmark Forum Retirement Savings and Benefits Savers Credit Followup

This topic contains 8 replies, has 3 voices, and was last updated by  Arimafeya 3 weeks, 1 day ago.

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  • #3156

    kaneohe
    Participant

    Disqualifying distributions for a 2016 return include,among others, those received before the due date of your 2016 return (including extensions).
    The due date for the 2016 return was in mid April 2017. The due date for the extension was mid Oct. 2017? If taxpayer did not file for extension, which date applies?

    Suppose taxpayer made a contribution of 4K in 2018 to Roth. However taxpayer took a distribution from TIRA in 2017 of 4K. That would mean no savers credit. However if taxpayer made additional 1K contribution to Roth, taxpayer could get $500 credit. What is deadline for making that
    contribution for 2018?……….mid April 2019? If taxpayer subsequently withdrew 1K from Roth, I know that would limit savers credit in subsequent yrs but would it endanger the credit for 2018 that was valid when 2018 return was filed? If that withdrawal was in 2018 after return was filed.

    Actual situation is that return was already filed and credit was claimed
    for Roth contribution (limited by tax). However distribution in prior year that would have negated savers credit was missed . Can taxpayer
    add that 1K to restore credit , claim the credit, then subsequently withdraw that amount if needed w/o losing the credit again? If so,
    how soon can that withdrawal be made?

    #3157

    Alan S.
    Participant

    If taxpayer did not file an extension for 2016, the testing period ends on 4/15. Perhaps this extension provision reflects SEP IRAs for which a contribution deadline is also extended by filing an extension.

    Taxpayer could make the additional contribution for 2018 up to 4/15/2019. If they then withdraw 1k (not through return of contribution) after 4/15 it will not affect the 2018 savers credit.

    #3158

    kaneohe
    Participant

    Thanks,Alan, there’s hope yet if taxpayer can round up that 1K in 2 wks.

    #3181

    kaneohe
    Participant

    Another issue……..taxpayer is having IRA contribution automatically withdrawn from paycheck and deposited in account. By default…..I am just guessing but it seems natural that contributions made in 2019 would be considered 2019 contributions and not eligible for the 2018 savers credit unless somehow the bank could be persuaded to reclassify them as 2018 contributions. Does it matter when that reclassification is done and any tips for persuading them to do it?

    Right now the 2018 contributions are negated by prior yr distributions
    but if the contributions YTD in 2019 could be reclassified, the “full”
    credit could be obtained……limited by tax liability tho .

    #3182

    Alan S.
    Participant

    You are correct that most of these programs default to the date of the contribution matching that tax year. This is certainly an error prone situation if the employee does not monitor things. Rather than re classifying contributions already made there would be less risk of error to determine how much in 2018 contributions have already been coded by the IRA custodian, and if there is room for more, make that contribution separately and leave the already contributed amounts as is. That said, any method of changing the actual 2018 contribution amount that will be reported on Form 5498 can be reported on Form 8880 as a contribution for the applicable year. Form 8880 and the 5498 must be in sync unless a contribution is later removed or recharacterized.

    #3183

    kaneohe
    Participant

    Thanks, Alan. That’s a good suggestion………will have to see if there are such extra funds available tho. ……but certainly room for errors here unless there are such extra funds.

    #3195

    kaneohe
    Participant

    Taxpayer already filed and will be getting Savers Credit limited by tax , not by amount of Roth contribution. Original return was in error because withdrawals from Roth were not taken into account.

    Correct return , assuming correct reallocation of 2019 contributions
    (before 4/15/19) to 2018 will have different numbers for contributions
    & withdrawals but because Savers Credit is limited by tax, the credit will be unchanged from original return.

    File amended return because the intermediate numbers on 8880 are different
    or don’t file because bottom line is unchanged? Can taxpayer assume that if IRS finds withdrawals from Roth were higher than reported , IRS will also discover that contributions were also higher than reported ?…….
    so no need to file amended return?

    • This reply was modified 4 months, 1 week ago by  kaneohe.
    #3197

    Alan S.
    Participant

    1040X is needed because the line 4 reduction for future years will be increased by the higher distribution in the testing period even though the Savers Credit for the current year does not change.

    #3783

    Arimafeya
    Participant

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