Why don’t I qualify for the Retirement Saver’s Credit?

[psychopengy]

Hello. I think I should qualify for a (very small) retirement saver’s credit but TurboTax says no. Here are my numbers - 1040-SR: line 11 (AGI): $24,407; line 16 (Tax): $54; I made a Roth IRA conversion in Dec. 2025 in the amount $17,046 from a Traditional IRA account I have with an investment company, which I know triggered a tax liability for that amount. I’ll make a $6,600 Roth IRA contribution before the April 15th deadline. I filled out the form 8880, including the credit limit worksheet, myself. The most important point here is that, according to the form 8880 instructions, I do not include "Distributions from your eligible retirement plan (other than a Roth IRA) rolled over or converted to your Roth IRA” on line 4 of form 8880. According to IRA rules, the traditional IRA counts as an eligible retirement plan. So when I fill out the form 8880, it indicates that I’m eligible for a $54 credit. I know you’re thinking “All this trouble for a measly $54??” Yes, I agree, but part of it is I want to understand why. And the same thing happened to me last year. Please let me know if you need any more information. Many thanks. 

[dmertz]

Your Retirement Savings Contributions Credit is limited to $54 because this tax credit is not permitted to reduce your tax liability below zero.  Tax credits that are not permitted to reduce your tax liability below zero are referred to as nonrefundable credits.

[psychopengy]

Thank you for the reply. I understand that the limit of my retirement saver’s credit would be only $54. The issue is that TurboTax won’t even give me that. This happened last year as well, and you gave me some workaround advice but it didn’t work. I finally gave up. Could it be a glitch in the program? 

[dmertz]

Examine Schedule 3 to see if the $54 credit is being included on line 4.  Note that the credits from line 8 of Schedule 3 can only be used to reduce income taxes, not other taxes that are present on Form 1040 line 23.

[psychopengy]

I reviewed schedule 3 and there is nothing entered on line 4. I also returned to the Retirement Saver’s Contribution credit section and reviewed my entries. TurboTax still said that I don’t qualify for the credit. It never asked whether or not  my IRA distribution was converted to a Roth IRA. So I either don’t really understand how the  Retirement Saver’s Contribution credit works, or there is a flaw in that section in TurboTax. It’s very confusing because when I fill out the actual IRS forms (8880, schedule 3, etc.), I qualify for the credit (albeit only the $54). Is there anyone at TurboTax that you can consult with that can explain this issue? It’s no tragedy if I don’t qualify for the credit, I just want to be explained why not. I appreciate your time, by the way. Thanks. 

[dmertz]

If you have not yet entered the $6,600 Roth IRA contribution that you intend to make, TurboTax will not prepare Form 8880.  Also, if you failed to properly tell TurboTax that the distribution from the traditional IRA was converted to Roth, the amount distributed from the traditional IRA will be subtracted from the $6,600 on Form 8880 line 5.  With these properly entered, your Form 8880 should have $6,600 on line1, 3 and 5, and nothing on line 4 (assuming that you received no distributions in 2022 or later that are required to be included on line 4).  The amount of the credit will then be based on your filing status.

[psychopengy]

I had entered the amount of my Roth IRA contribution in TurboTax.  And, as I had previously mentioned, TurboTax never asked whether the distribution from the Traditional was converted to a Roth IRA. 

I wound up using the IRS’s Interactive Tax Assistant feature to see if I qualified for the credit, and the answer was that since the amount of the distribution was greater than the amount of my Roth IRA contribution, I didn’t qualify for the credit. I’m satisfied with that answer, although it’s confusing since filling out the IRS forms by hand gave me a credit. 

[dmertz]

If your only distribution was the $17,046 and that amount was converted to Roth, make sure that nothing is present on the 2025 line of the Line 4 Smart Worksheet on TurboTax's Form 8880.  If you answered Yes to TurboTax's question in the Retirement Savings Contributions Credit section that asks if you received distributions after 2022, do not enter any amount that was converted to Roth.  In fact, do not enter anything in the 2025 box since TurboTax TurboTax populates that box automatically.

If I understand your transactions correctly and assuming that you file Single, your Form 8880 should look like this:

[psychopengy]

The sample form 8880 you provided looks exactly like the one I filled out. I don’t know why the TurboTax software didn’t ask me whether or not my IRA distribution was converted to a Roth IRA, but I just follow the prompts. Maybe a a glitch with the on-line version? That’s the one I’m using. Maybe TurboTax software designers could look at that.

Thanks again for your time. 

[dmertz]

"The sample form 8880 you provided looks exactly like the one I filled out."

What matters is the one that TurboTax prepares.  If the one that TurboTax prepares is different, how is it different?  (The sample that I posted was prepared using TurboTax.)

If you did not properly enter the Roth conversion into TurboTax, the amount on Form 1040 line 4b would still have the correct taxable amount but the distribution would appear on line 4 of Form 8880.  That would subtract $17,046 from the $6,600 contribution, leaving nothing on line 5 on which to calculate the credit.