You may be able to take a tax credit if you make eligible contributions (defined later) to a qualified retirement plan, an
eligible deferred
compensation plan, or an individual retirement arrangement (IRA). You may be able to take a credit of up to $1,000 (up to
$2,000 if filing jointly).
This credit could reduce the federal income tax you pay dollar for dollar.
Can you claim the credit?
If you make eligible contributions to a qualified retirement plan, an eligible deferred compensation plan, or an IRA,
you can claim the credit if
all of the following apply.
-
You were born before January 2, 1986.
-
You are not a full-time student (explained later).
-
No one else, such as your parent(s), claims an exemption for you on their tax return.
-
Your adjusted gross income (defined later) is not more than:
-
$50,000 if your filing status is married filing jointly,
-
$37,500 if your filing status is head of household (with qualifying person), or
-
$25,000 if your filing status is single, married filing separately, or qualifying widow(er) with dependent child.
Full-time student.
You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during
the calendar year, you are
either:
-
A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students
in attendance,
or
-
A student taking a full-time, on-farm training course given by either a school that has a regular teaching staff, course of
study, and
regularly enrolled body of students in attendance, or a state, county, or local government.
You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full time.
Adjusted gross income.
This is generally the amount on line 35 of your 2003 Form 1040 or line 22 of your 2003 Form 1040A. However, you must
add to that amount any
exclusion or deduction claimed for the year for:
-
Foreign earned income,
-
Foreign housing costs,
-
Income for bona fide residents of American Samoa, and
-
Income from Puerto Rico.
Eligible contributions.
These include:
-
Contributions to a traditional or Roth IRA,
-
Salary reduction contributions (elective deferrals) to:
-
A 401(k) plan (including a SIMPLE 401(k)),
-
A section 403(b) annuity,
-
An eligible deferred compensation plan of a state or local government (a governmental 457 plan),
-
A SIMPLE IRA plan, or
-
A salary reduction SEP, and
-
Contributions to a section 501(c)(18) plan.
They also include voluntary after-tax employee contributions to a tax-qualified retirement plan or section 403(b) annuity.
For purposes of the
credit, an employee contribution will be voluntary as long as it is not required as a condition of employment.
Reducing eligible contributions.
Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing
period (defined later) from any
IRA, plan, or annuity included above under Eligible contributions. Also reduce your eligible contributions by any distribution from a Roth
IRA that is not rolled over, even if the distribution is not taxable.
Do not reduce your eligible contributions by any of the following.
-
The portion of any distribution which is not includible in income because it is a trustee-to-trustee transfer or a rollover
distribution.
-
Any distribution that is a return of a contribution to an IRA (including a Roth IRA) made during the year for which you claim
the credit
if:
-
The distribution is made before the due date (including extensions) of your tax return for that year,
-
You do not take a deduction for the contribution, and
-
The distribution includes any income attributable to the contribution.
-
Loans from a qualified employer plan treated as a distribution.
-
Distributions of excess contributions or deferrals (and income attributable to excess contributions and deferrals).
-
Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k).
Distributions received by spouse.
Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse
both for the year of the
distribution and for the year for which you claim the credit.
Testing period.
The testing period consists of the year for which you claim the credit, the period after the end of that year and
before the due date (including
extensions) for filing your return for that year, and the 2 tax years before that year.
Example.
You and your spouse filed joint returns in 2001 and 2002, and plan to do so in 2003 and 2004. You received a taxable distribution
from a qualified
plan in 2001 and a taxable distribution from an eligible deferred compensation plan in 2002. Your spouse received taxable
distributions from a Roth
IRA in 2003 and tax-free distributions from a Roth IRA in 2004 before April 15. You made eligible contributions to an IRA
in 2003 and you otherwise
qualify for this credit. You must reduce the amount of your qualifying contributions in 2003 by the total of the distributions
you received in 2001,
2002, 2003, and 2004.
Maximum eligible contributions.
After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per
person.
Effect on other credits.
The amount of this credit will not change the amount of your refundable tax credits. A refundable tax credit, such
as the earned income credit or
the refundable amount of your child tax credit, is an amount that you would receive as a refund even if you did not otherwise
owe any taxes.
Maximum credit.
This is a nonrefundable credit. The amount of the credit in any year cannot be more than the amount of tax that you
would otherwise pay (not
counting any refundable credits or the adoption credit) in any year. If your tax liability is reduced to zero because of other
nonrefundable credits,
such as the Hope credit, then you will not be entitled to this credit.
How to figure and report the credit.
The amount of the credit you can get is based on the contributions you make and your credit rate. Your credit rate
can be as low as 10% or as high
as 50%. Your credit rate depends on your income and your filing status. See Form 8880 to determine your credit rate.
The maximum contribution taken into account is $2,000 per person. On a joint return, up to $2,000 is taken into account
for each spouse.
Figure the credit on Form 8880. Report the credit on line 48 of your Form 1040 or line 32 of your Form 1040A and attach
Form 8880 to your return.
