Should my Retirement Savings Contribution Credit increase if I increase the amount in my Roth contribution? I tried it just to see, but my credit didn't go up. Why not?

[shaffermary27]

How I understand it is that I should get a percentage deducted, up to $2000. Right now my deduction is only $500, so I'm confused why it's not going up if I add more to my Roth.

[dmertz · Accepted solution]

The Retirement Savings Contributions Credit is a tax credit, not a tax deduction.  The credit is calculated on Form 8880 on the first $2,000 of your retirement contributions for the year by multiplying by a factor determined by your AGI.  The credit on Form 8880 line 12 transfers to Schedule 3 line 51.  This credit only applies to income taxes and cannot be used to reduce your income tax liability below zero on Form 1040 line 13.

If you qualify for the credit and have not already maxed out the credit based on your other retirement contributions and tax liability, making a permissible Roth IRA contribution for 2018 will increase the credit.  Review Form 8880 to see the effect.

[shaffermary27]

Yeah, the reason my credit didn't go up past $500 is because my income tax liability was already maxed out, and I didn't realize that this credit couldn't be applied to my self-employment tax. Thanks for your response.