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Old 12-13-2020, 02:53 PM   #21
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Originally Posted by Gumby View Post
CORRECTED TO POST #14 IN THIS THREAD


Similar to what I did last year, here is a list of important “trigger” income levels for 2021.

Thanks for posting all of this information. It will be very useful for planning purposes.

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$39,501 – Savers Credit drops from 50% to 20%

$43,001 – Savers Credit drops from 20% to 10%
I still find it amazing that a $3,501 change in income can make a $1,600 difference in a couple's tax refund. If a couple, after maxing out all their retirement contributions and savings ends up with an AGI of $39,500 or lower they get a $2,000 (50% of the $4,000) saver's credit. If they end up with an AGI over $43,001 (up to $66,000) they only get a $400 saver's credit.
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Old 12-13-2020, 03:15 PM   #22
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Originally Posted by ArmchairMillionaire23 View Post
Thanks for posting all of this information. It will be very useful for planning purposes.



I still find it amazing that a $3,501 change in income can make a $3,600 difference in a couple's tax refund. If a couple, after maxing out all their retirement contributions and savings ends up with an AGI of $39,500 or lower they get the $4,000 saver's credit. If they end up with an AGI over $43,001 (up to $66,000) they only get a $400 saver's credit.
Wrong! The maximum contribution that can go towards the credit is $4000 for a couple. So the $39,500 couple gets a $2000 credit($4000X50%) and the $43,001 couple gets $400 credit($4000X10%). Also, it is not refundable so the lowest income people can't even get the full credit. I have had a AGI of around $15K and saved $2000+ which should be a $1000 credit but my total federal tax liability was only around $300 so that is what I got for a credit.
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Old 12-13-2020, 03:27 PM   #23
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Quote:
Originally Posted by ArmchairMillionaire23 View Post
Thanks for posting all of this information. It will be very useful for planning purposes.



I still find it amazing that a $3,501 change in income can make a $3,600 difference in a couple's tax refund. If a couple, after maxing out all their retirement contributions and savings ends up with an AGI of $39,500 or lower they get the $4,000 saver's credit. If they end up with an AGI over $43,001 (up to $66,000) they only get a $400 saver's credit.
That's not exactly how the savers credit works. It is a credit for a percentage of only the first $2000 that an individual contributes to a retirement savings account in a year.

So, for example, suppose a couple together contributed $6000 to their IRAs ($3k each). And suppose that after that IRA contribution, they had an AGI of $39,500 exactly. They are still in the 50% credit territory, but recall that the credit only applies for the first $2000 of the amount contributed to the IRA per person, not to the whole $3000. So the max credit they can claim is $2000 = $2000 per person contribution limit x 50% credit x 2 people. Now suppose that they had an AGI of $43,001. Then they are in 10% territory. So now their credit is $400 = $2000 per person contribution limit x 10% x 2 people. That's only a $1600 reduction in credit for a $3501 increase in AGI. Still ouch, but not quite as bad.

More importantly, the credit is non-refundable. So while it can reduce the tax you otherwise would owe, it does not increase your refund one penny.

There are a number of government programs that have similar "cliffs", like ACA subsidies and IRMAA surcharges. The best you can do is be aware of them.

If it gives you any comfort, you could look at the converse and say that if they had each contributed just another $1751 to their IRA that year, they would have lowered their combined AGI to $39,499 and gained $1600 in tax credit. Indeed, even if they immediately withdrew that $3502 the next year and paid the tax (they'd be in the 12% bracket) and 10% penalty, for a total cost of 22% of $3502, they would still be money ahead (to the tune of $830).
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Old 12-13-2020, 03:31 PM   #24
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Wrong!
I updated the post. I read the IRS form incorrectly, sorry. I'm not sure how that happened as the IRS makes their forms so easy for the average person to understand.
We maxed out my 401(k) and both of our IRA account contribution limits in 2019. Our tax liability was enough where the $400 (10%) went straight to our refund. Had the credit been $2,000 we might not have gotten all of the credit based on what we paid in taxes but it would have been pretty close.
For 2021 I'm planning on maxing out my 401(k) at $26,000 (I'm 50!) and maxing out my Roth IRA and the wife's traditional IRA as well as both of our HSA accounts. If I can keep my overtime worked down hopefully we can at least reach the 20% if not the 50% level next year.
Now if we can only figure out how to contribute to the wife's 403(b) account next year. The school system's retirement plans and pay stubs are the most confusing I've ever seen. Even more so than IRS documents.

Thanks again, Gumby for the post. Very valuable information!
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Old 01-12-2021, 01:04 AM   #25
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Due to the December Consolidated Appropriations Act (famous for the additional EIP2 of $600 per person), the phaseouts for the Lifetime Learning Credit are now the same as for the AOTC.

"The CAA adopts a single phaseout for both the AOTC and the LLC, effective for tax years beginning after December 31, 2020. The credits will phase out beginning at $80,000 for single filers and ending at $90,000. For joint filers, they will begin to phase at $160,000 and disappear at $180,000."

- https://www.elliottdavis.com/consoli...f-individuals/

OP needs to be updated.
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Old 01-12-2021, 07:17 AM   #26
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Due to the December Consolidated Appropriations Act (famous for the additional EIP2 of $600 per person), the phaseouts for the Lifetime Learning Credit are now the same as for the AOTC....

OP needs to be updated.
Done
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Old 01-12-2021, 01:55 PM   #27
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Gumby, thank you for the posting.
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