I am preparing my daughter's taxes and I have a question about the Saver's Tax Credit. She changed jobs both in 2023 and 2024 and cashed out her very small 401K balances from each employer in 2023 and 2024. I know this reduces the $200 tax credit you can get for qualified retirement savings contributions. The first one was deducted from the credit in her 2023 taxes. The second will impact the 2024 tax credit. Why does the amount received in 2023 impact 2024 taxes too? Seems like you're being "punished repeatedly". Am I doing this wrong? The IRS website just states "...your eligible contributions may be reduced by any RECENT distributions you received from a retirement plan...". Define RECENT. GREATLY appreciate any clarification!!!
