Can I Get Tax Deductions With a Roth IRA?

by Herb Kirchhoff

A Roth individual retirement account (IRA) offers a tax-advantaged alternative to the traditional IRA. With a traditional IRA, you pay taxes on your distributions after you retire. But a Roth IRA provides you with tax-free retirement income. The reason for this difference is the different tax treatment given to traditional and Roth IRA contributions.

Tax Deductions

With a Roth IRA, you don't get any tax deduction on your contributions, but your earnings on those contributions accumulate tax-free during your working years. At retirement, you can take money out of your Roth account without owing any taxes because you paid the taxes on the contributions before you put them into your Roth account. With a traditional IRA you get a tax deduction on the amount you contribute to your retirement savings (up to an annual limit), and taxes on your earnings are deferred until retirement. The government collects the taxes when you withdraw from your traditional IRA at retirement.

Retirement Savings Credit

Although contributions to a Roth IRA don't qualify for a tax deduction, they may qualify for the Retirement Savings Contribution Tax Credit that reduces your tax bill dollar for dollar. The retirement saving tax credit provides an incentive to encourage low-income people to save for retirement. Single taxpayers who earn less than $27,750 may get a retirement savings tax credit on up to $2,000 in Roth IRA contributions. Married couples filing jointly, who earn less then $55,500, may get a retirement savings tax credit on up to $4,000 in Roth contributions. Your tax credit will equal 10 percent to 50 percent of your contributions, depending on your income and filing status. You can compute your credit using Form 8880.

Other Credit Qualifiers

Income is not the only qualification a taxpayer must meet to be eligible for the retirement savings credit. You, and your spouse if married filing jointly, must be over age 18 and not be a full-time student. You are deemed to be a full-time student if you are enrolled in the number of hours or courses the school considers full-time enrollment, and were enrolled for at least five months during the calendar year. You and your spouse also can't be claimed as a dependent by anyone else, such as a parent.

Distribution Offset

Roth IRA contributions eligible for the retirement savings credit will be reduced by any distributions paid to you from your Roth account, even though the distribution itself is not taxable. For example, if you had contributed $2,000 to your Roth account but received $1,500 in distributions in the same year, your retirement savings credit would be figured on only $500 of your contributions. If you are filing jointly and your spouse received a Roth IRA distribution, it counts against both of you.

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