retirement savings contributions credit

I thought that Roth IRA is not tax deductible, but is it? I was reading the instructions of Form 1040 Line 53 and it sounds like we can get credit for Roth IRA or 401(k) or 403(b) as long as we meet the requirements. Or, does it mean that we cannot get this credit IF we invest on both Roth IRA AND 401(K)? It sounds too good to be true if we can get credit for 401(K) because 401(K) money is pre-tax, I thought. And, I did not think we can get credit for Roth, so am I misunderstanding something here? Could anyone help me out? Thanks!!!

A Roth is not tax deductible, in the sense that your contributions are not tax deductible. But you can possibly claim a credit anyway for putting money away into your own retirement plan, even if it is a Roth.

Go to the IRS website and dowload form 8880. It is what you need to file if you are claiming a credit on 1040 line 53.

Spockally,

Do not confuse deductions with credits.
Deductions will reduce your taxable income.
Credits will reduce your tax.

Contributions to a Traditional IRA are deducted on 1040 line 32.
Contributions to a 401k/403b are deducted from your income by your employer.

Maxwell50 has given you information you need to claim the "Savers Tax Credit",
1040 line 53.

thank you very much. I read publication and checked the form also. I still do not understand why we can get credit for 401(k).... is this the way the goverment encourages us to save for retirement?

...is this the way the goverment encourages us to save for retirement?
Yes, this is exactly why they have this "savers tax credit".

One would think that saving your own money and investing it over time would be enough of a reward, but evidently some people need even more motivation.

To put it all into perspective, if you put away $5000 a year in an individual Roth IRA, and another $15,000 per year in a Roth-401K, and your investment is in standard equities (Dow, S&P, etc), you will become a millionaire in 18 years. Alternately, if you start doing this at age 30, then by the time you are 65 you will have Roth accounts with 6 million dollars in them. Best of all, since they are Roth accounts, all this money would be tax free.

Despite the fact that this is attainable, and most people will never get a deal this good anywhere else in their entire lifetime... as mentioned earlier, evidently this is not enough of an incentive for many people to save, so the government has instituted the savers tax credit.

thank you so much for explaining to me. now I understand much better. I wish I knew this credit long time ago.... when I was working 8 or 9 years ago, I was using 401K but I never took credit for this. sad.... well, now at least I learned my lesson. thanks everyone!

Spockally,

This may ease your mind a bit. In the early years of the Savers Tax Credit it was limited to folks with no more than $50,000 AGI (MFJ).