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Use Tax Saver Credit during early retirement?
Old 01-16-2011, 08:18 PM   #1
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Use Tax Saver Credit during early retirement?

I was reading up on the Tax Saver Credit What Is the Tax Saver's Credit? | eHow.com
and while my AGI is too high to qualify while I'm working, I'm wondering if I could use this after I early retired (in my 50's)? I plan on living off CD's during my early retirement and during this period the only income would be my wife's pension which she is collecting now. I studied IRS Publication 590 and it seems she could divert $1K to $2K per year towards a traditional or Roth IRA and this number would come right off my taxes. Am I reading this right? Anyone currently taking this credit while in early retirement?
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Old 01-16-2011, 09:17 PM   #2
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You cannot contribute to an IRA unless you have earned income and a pension does not count.

I was playing around with TaxCaster and it looks like I could get a tax credit of $5850 from the IRS, but ....

I would get $1000 for tuition credit and $4850 from something else. I needed $16,000 of earned income to get that amount.

Anyways, I will have to confirm with TurboTax.
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Old 01-16-2011, 10:53 PM   #3
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My husband retired in 2010 and I have a part time job.

I looked into using this for 2011. DH's income will be all pension and that pension amount will offset any contributions coming from my income. So this will not work for us.

This was not clear in the instructions for the IRS Form 8880, it's kind of hidden in the fine print. Line 4 certain distributions includes Trad and Roth IRAs, 401K, 403B, governmental 457, 501C18D, SEP, SIMPLE plans.

Either you or your wife have to have EARNED INCOME and her particular type of pension has to not be the kind that offsets a current IRA contribution.

DHs pension is a public employee pension and that counts against any IRA contribution from my earned income.

I researched what I could online and played with a few tax calculators and a 1099-R with box 7 Distribution code =7 (normal distribution) caused the Savers Credit to not be available.

Finally, I called the IRS and asked about this and they confirmed it.
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Old 01-17-2011, 05:37 AM   #4
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Oh well - thanks for the feedback.
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Old 01-17-2011, 09:35 AM   #5
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I haven't heard of this one before. I may qualify, since we are mostly retired but have a small income from side business that allows us to contribute to our Roths. The article didn't really explain about the credit. How much is it worth? Also, would TurboTax pick it up automatically if we qualified and add it in? Or is it something you have to do manually? I may actually not qualify this year after converting to a Roth up to the top of the 15% bracket, but if it was worth it I could recharacterize a little to squeeze in under the limit. Anybody got more information on this thing?

Edit: Nevermind. Just went and read the form 8880, and it doesn't look like it's worth it to me. I'd rather keep the conversion.
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Old 01-17-2011, 02:42 PM   #6
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Oh, some of the credit I listed in my previous post was the child tax credit. That's another reason to retire early. Just make sure you work a few hours in January, so you have some earned income for the year.
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Old 01-17-2011, 02:48 PM   #7
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The savers credit is a per centage of your contribution to an IRA or 401k or Roth, the percentage can be 10%, 20% or 50% of your contribution. You need to have earned income in order to make the contribution. The percentage is highest 50% , if your income is very low ( based on your AGI) which will include your income from all sources. The credit disappears at a fairly low agi level, so it is meant for low income tax payers.
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Old 01-17-2011, 02:50 PM   #8
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H&R Block - Tax Rate Tables - Saver's Credit
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Old 01-17-2011, 07:18 PM   #9
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I "think" your wife's pension, if you file jointly, would disqualify you from this credit. It did me. I took advantage of this credit for 3 years, until my SO started her pension early.
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