Roth IRA Contribution Tax Credit

You must use Form 1040 if you want to claim the retirement savings credit.

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Roth individual retirement accounts are best known for the tax-free qualified distributions and the lack of a deduction for contributions. However, just because you can't deduct your contributions to a Roth IRA doesn't mean your taxes won't go down. Depending on your circumstances your contributions might qualify you to claim the retirement savings credit.

Income Limits

Roth IRA contributions count towards figuring your retirement savings credit, but your modified adjusted gross income can't exceed the limits for your filing status. However, these limits change annually. For example, in 2012, if you're married and filing jointly, you aren't eligible if your modified adjusted gross income exceeds $57,500. For heads of household, the limit is $43,125. For single filers and married people filing separately, the limit is $28,750.

Other Qualifications

You must meet several other criteria before you can claim the credit. First, you must be at least 18 years old. Second, you can't be a full-time student for any part of five or more months during the year. Finally, you can't be claimed as a dependent on another person's return.

Credit Calculations

The amount of the credit can be up to $1,000 ($2,000 if you're filing jointly). You can count up to $2,000 of your Roth IRA contribution toward figuring the credit. The percentage of the credit depends on your modified adjusted gross income and ranges from 10 percent to 50 percent of your contribution. The higher your income, the smaller the credit. However, if you're married filing jointly, you can only count $2,000 of contributions to each spouse's Roth IRA. For example, if one spouse contributes $4,000 and the other contributes $0, only $2,000 counts toward figuring the credit.

Tax Reporting

To claim the credit, use IRS Form 8880. The form incorporates your modified adjusted gross income from your tax return so that you can figure the percentage credit. Then, you figure the credit based on your percentage and your (and your spouse's, if married) Roth IRA contributions. Once you've figured the credit, it gets copied to either line 50, if you use Form 1040, or line 32, if you use Form 1040A.