Don't Miss Out on This Retirement Savings Tax Break

By Sarah Brenner, JD
Director of Retirement Education

For those just starting out, saving for retirement can be challenging. For young workers, paying the rent and buying the week’s groceries may take priority and there is only so much money to go around. However, there is an often-overlooked tax break that may make saving for retirement more attractive.

Many people are unaware of the Saver's Credit. You are eligible for the credit if you are age 18 or older, not claimed as a dependent on another person’s return, and not a student.

The tax credit is available to lower-income workers who make IRA contributions or contribute to an employer plan. The maximum contribution amount eligible for the credit is $2,000. Since the maximum credit rate is 50%, an IRA owner or plan participant can potentially reduce tax liability by up to $1,000. Rollover contributions do not qualify for the credit. The credit is nonrefundable which means it cannot reduce your tax liability to less than zero. Also, it may be reduced by any recent distributions you received from your retirement plan or IRA. The Saver’s Credit can be a double tax break because it is available in addition to any deduction in income that may be available for a retirement savings contribution.

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How Do I Get Back My 2020 RMD?

By Ed Slott, CPA

Every month, IRA expert Ed Slott is taking your questions about Individual Retirement Accounts on AARP:

Early last year I took my 2020 required minimum distribution (RMD) from my IRA, but later in the year the tax law waived RMDs, so I returned the funds. By doing this, I thought this was all taken care of, meaning that I thought I was “zeroed” out with no tax due.

But now it's tax time, and I have two issues I'd like help on.

• First, I received a 1099-R form for the distribution showing it as taxable, even though I returned the unwanted 2020 RMD. What do I do?
• The second issue makes this a bit more complicated. When I took my 2020 RMD I had tax withheld (like I usually do to cover the taxes on my RMDs), so I only received a “net” distribution and that is the amount I returned. Do I now have a tax problem? If so, can it be fixed now in 2021?

First, you are not alone. This is the top RMD tax question we are receiving, even from accountants preparing tax returns. Folks just like you are preparing your 2020 taxes based on the 1099 forms you received. Remember that the IRS also received a copy of that 1099 form, so you will have to match those amounts on your tax return and explain any differences between what the 1099-R shows as taxable income and what is actually taxable income — which could, in fact, be nothing. But your tax return must tell that story to avoid IRS problems.

Q: Next year in 2022, I will be age 72 in March. I plan to request my first RMD in December of this same year 2022.

If I do a Roth conversion in early February of next year (2022), before I become age 72, will this count toward my RMD for the year 2022?

Answer

Q: Has the deadline to make an IRA contribution for 2020 been extended since the 2020 tax filing date has been extended to May 17, 2021?

Answer

Q: A client received an IRA from his father in 2016, made it an Inherited IRA (taking RMD’s). Client passed away in 1/2021. What does the Inherited IRA become to his spouse, and how are RMD’s calculated?

Answer

Q: If you max out a 401(k) (personal + profit sharing), can you still contribute to a Traditional IRA an additional $6,000 as a non-deductible contribution?

Answer

Q: Are contributions that are made to a traditional IRA (without taking the deduction) and then converted to a Roth IRA (backdoor IRA) available to the contributor to take out at any time tax and penalty free – the same as contributions made directly to a Roth IRA?

Answer

Have a question for America's IRA Experts?
Email your questions to us at [email protected]. Selected questions will be featured every Thursday in the Slott Report.

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