pirsquared
Recycles dryer sheets
- Joined
- Jun 13, 2021
- Messages
- 129
One of the silver linings of my husband's unexpected early retirement (prompted by a COVID layoff last year) is that our income will be low enough to take the Retirement Savings Contribution Credit. Because I am significantly younger and am still working, we plan to continue to contribute to our Roth IRAs. Because we file MFJ and my income is greater than our combined contributions, we can both still contribute.
However, my husband has a modest (~$1000/mo) pension that he started taking recently to supplement my income. We decided that he would take the pension early at the reduced amount and that will enable him to wait until 70 to start drawing SS. This is a defined benefit pension to which he did not contribute.
My question is whether this would reduce (and thus eliminate) our contributions from eligibility for the Saver's Credit (form 8880, line 4). It makes sense that you could not take the credit for contributing to an IRA in the same year as taking a distribution from an IRA. However, this pension seems different because he did not contribute to it. In fact, the IRS states: "In general, your qualified retirement savings contribution is not reduced by distributions you received from a plan in which you could not make a qualified retirement savings contribution." (https://apps.irs.gov/app/IPAR/resources/help/retcrexcldplan.html)
But I am stuck on the language "could not make" versus "did not make." We definitely "did not" make contributions and he "could not" make contributions to this exact pension, but his employer did have a "voluntary pension account" to which he could but did not contribute. That would have increased the pension amount, but seems to technically be a separate account when I read all the fine print in the retirement benefits handbook.
What do you think? Is this common or unusual? Will it be a red flag to have pension income on a 1040 and also take the Saver's Credit? It is less important to me to be able to take the credit than it is to actually know the correct answer to this question so I can do our taxes correctly. BTW, I have always done our taxes "by hand" and currently use the IRS Free Fillable Forms.
Thanks for reading!
However, my husband has a modest (~$1000/mo) pension that he started taking recently to supplement my income. We decided that he would take the pension early at the reduced amount and that will enable him to wait until 70 to start drawing SS. This is a defined benefit pension to which he did not contribute.
My question is whether this would reduce (and thus eliminate) our contributions from eligibility for the Saver's Credit (form 8880, line 4). It makes sense that you could not take the credit for contributing to an IRA in the same year as taking a distribution from an IRA. However, this pension seems different because he did not contribute to it. In fact, the IRS states: "In general, your qualified retirement savings contribution is not reduced by distributions you received from a plan in which you could not make a qualified retirement savings contribution." (https://apps.irs.gov/app/IPAR/resources/help/retcrexcldplan.html)
But I am stuck on the language "could not make" versus "did not make." We definitely "did not" make contributions and he "could not" make contributions to this exact pension, but his employer did have a "voluntary pension account" to which he could but did not contribute. That would have increased the pension amount, but seems to technically be a separate account when I read all the fine print in the retirement benefits handbook.
What do you think? Is this common or unusual? Will it be a red flag to have pension income on a 1040 and also take the Saver's Credit? It is less important to me to be able to take the credit than it is to actually know the correct answer to this question so I can do our taxes correctly. BTW, I have always done our taxes "by hand" and currently use the IRS Free Fillable Forms.
Thanks for reading!