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Under "Credit for retirement savings contributions" my $8K roth principle dist reduces my refund. My 2014 $6K dist doesn't reduce my refund. I'm confused.

Both my 2014 and 2015 roth distributions were qualified. The 2014 $6K distribution has no affect and the 2015 $8K roth distribution reduces my refund by $200. Why would  there be any increase on taxable income under a retirement contribution savings credit? 

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Level 15

Under "Credit for retirement savings contributions" my $8K roth principle dist reduces my refund. My 2014 $6K dist doesn't reduce my refund. I'm confused.

Both of these distributions reduce the amount of your retirement contributions that are considered when calculating your Retirement Savings Contributions Credit, even though they are qualified distributions.  Once you've entered enough for your 2014 and 2015 distributions to completely offset the contribution that would otherwise be considered for determining the credit, your credit is reduced to zero and any additional amounts entered as distributions will not reduce the credit below zero.  The behavior that you are seeing suggests that you would receive a credit of 10% of $2,000 had you not taken the distributions, but that $8,000 distributed is more than enough to completely offset the amount of new retirement contributions that you made.

Congress put this limitation into the tax law so that you cannot make a distribution from a retirement account to make a new contribution just so you could claim the Retirement Savings Contributions Credit, not actually increasing the amount of your retirement savings.

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Level 15

Under "Credit for retirement savings contributions" my $8K roth principle dist reduces my refund. My 2014 $6K dist doesn't reduce my refund. I'm confused.

Both of these distributions reduce the amount of your retirement contributions that are considered when calculating your Retirement Savings Contributions Credit, even though they are qualified distributions.  Once you've entered enough for your 2014 and 2015 distributions to completely offset the contribution that would otherwise be considered for determining the credit, your credit is reduced to zero and any additional amounts entered as distributions will not reduce the credit below zero.  The behavior that you are seeing suggests that you would receive a credit of 10% of $2,000 had you not taken the distributions, but that $8,000 distributed is more than enough to completely offset the amount of new retirement contributions that you made.

Congress put this limitation into the tax law so that you cannot make a distribution from a retirement account to make a new contribution just so you could claim the Retirement Savings Contributions Credit, not actually increasing the amount of your retirement savings.

View solution in original post