RMDs Disqualify the 8880 Credit
MFJ couple both taking RMDs from traditional IRAs. Husband still working and contributing to his 401k. The RMD amounts exceeded the 401k contribution. Income is such that he would have qualified for the Form 8880 Credit had it not been for the RMDs. Husband’s company will not allow his IRA to roll back into his 401k. Wife fully retired, so nowhere to roll her IRA.
Even if they both convert their IRAs to a Roth, the 8880 credit appears to be “contaminated” for the next 3 years by the RMDs. With the changes made to retirement giving, age, etc. this appears to be an “unintended’ negative consequence that might be worth correcting with future legislation.
Comments? What am I missing here?
Permalink Submitted by David Mertz on Sat, 2020-02-15 15:51
I see no reason for a change to this with future legislation. This credit was intended to promote an increased total amount of the family’s savings in retirement accounts, not just an increased amount of retirement contributions. Receiving distributions that total more than the new amounts contributed produces a net reduction in retirement savings. This anti-abuse provision is doing exactly what it is intended to do, prevent getting the credit for using retirement distributions to subsidize new retirement contributions.