Retirement Savings Credit

Taxpayers can receive a credit on their tax return (Form 1040 Line 51) for contributions to a retirement account. This is a non-refundable credit, meaning the credit will be applied to any taxes owed, up to the total amount of the tax. However, if the credit exceeds the tax amount, the credit will be used to reduce the taxes owed to zero, but no excess credit will be refunded. Also if no taxes are owed, no credit is applied to the return.

For most taxpayers, retirement account contributions will be shown on their W-2 in Box 12 (codes D, E, AA, BB, and EE). However, taxpayers can contribute to a Roth plan outside of their employment, and those contributions will not be shown on their W-2. For that reason, we should ask taxpayers if they contributed to a Roth account during the tax year, and - if Yes - determine if those contributions are shown on their W-2. If any Roth contributions are not shown on the W-2, make sure they are entered into the tax return.

Roth IRA Account

  • Contributions are made with after-tax money.
  • Distributions (of principal and growth) are tax-free.

    Roth IRA Savings

  • Qualify (with limitations) for Retirement Savings Credit (pub 4012 Pg G-9 and G-10).
  • Credit for Roth contributions must be reduced by the amount of any Roth distributions (pub 4012 Pg G-10).