2023 Return Savers Credit

[Dennis_Camper]

I contributed 9.000 + to my 401K in 2023. I also retired in 2023, and took my first IRA distribution in January of 2024. Does that distribution count against my 2023 savers credit? 

Thanks!

Dennis

[MinhT1]

No. Your withdrawal doesn't count against your contribution in determining the Savers' credit.

But the savers' credit only applies to the first $2,000 of your contribution.

Please read this TurboTax article for more information.

[Dennis_Camper]

Thanks the wording is confusing. It asks if I had a distribution after 2020 but before the due date of the 2023 return (april 14th 2024). The answer is yes, I took a distribution in January of 2024.

Then it lists 4 years to put distributions on (the last of which is 2024).

If you click help it lists distributions that don't count. #3 in the list is in conflict with timeframe referenced when it's asking you for any distributions between 2020 and the due date of the 2023 return. 

I.E. 

This list of items do not reduce your eligible retirement contributions.

3) Any distribution that is a return of a contributions to an IRA made during the year for which you claim the credit if the distribution is made before the due date of your return, you do not take a deduction for the returned contribution, and the distribution includes any income attributable to the contribution.

[AmyC]

The Form 8880 does subtract some distributions from contributions and it can get sticky. The Line 4 instructions are on page 2 and you can verify your contributions with distributions may still qualify. My guess would be the same as Minh - that you took out much less than you contributed.

[dmertz · Accepted solution]

Yes, the amount of your 401(k) contributions considered for the Retirement Savings Contributions Credit is reduced by the amount of your traditional IRA distribution.  If your traditional IRA distribution was less than your 401(k) contribution by $2,000 or more, you'll still have the maximum $2,000 considered for the credit.  If your traditional IRA distribution was more than your $9,000+ of 401(k) contributions for 2023, this will eliminate the entire amount considered for the credit.

This traditional IRA distribution in 2024 will also potentially affect this credit on your 2024, 2025 and 2026 tax returns.