When entering a Form 1099-R in the program, you may be asked whether you want the distribution to carry to Form 8880, Credit for Qualified Retirement Savings Contributions (commonly called the Saver's Credit).
Not all retirement distributions reduce the amount of retirement contributions eligible for the credit. According to IRS rules, certain types of distributions should not be included when calculating distributions reported on Form 8880, line 4.
If your distribution falls into one of the categories below, do not carry it to Form 8880.
Distributions That Should Not Be Included on Form 8880
The following distributions are excluded when figuring the retirement distributions used to calculate the Saver's Credit:
- Distributions that are not taxable because they were rolled over to another eligible retirement plan or completed through a trustee-to-trustee transfer.
- Distributions that are taxable solely because of an in-plan rollover to a designated Roth account.
- Distributions from an eligible retirement plan (other than a Roth IRA) that were rolled over or converted to a Roth IRA.
- Loans from a qualified employer retirement plan that are treated as distributions.
- Distributions of excess contributions or excess elective deferrals, including any earnings attributable to those contributions.
- Contributions made to an IRA and returned by the due date of the tax return (including extensions), along with any earnings attributable to those contributions.
- Dividends paid on stock held by an Employee Stock Ownership Plan (ESOP) under Internal Revenue Code Section 404(k).
- Distributions from a military retirement plan, other than the federal Thrift Savings Plan (TSP).
- Distributions from an inherited IRA received by a non-spouse beneficiary.
Why These Distributions Are Excluded
Form 8880 is designed to calculate the Saver's Credit based on retirement contributions made during the year. Certain retirement distributions reduce the amount of contributions eligible for the credit because they represent funds already available to the taxpayer.
However, the distributions listed above are excluded because they generally:
- Do not represent funds withdrawn for personal use,
- Are part of a qualified rollover or transfer,
- Are corrective distributions, or
- Fall under special IRS exceptions.
As a result, they do not reduce contributions eligible for the Saver's Credit.
Special Rule for Married Taxpayers
If you're entering a distribution on Form 8880 and you were not married filing jointly in the year the distribution was received:
- Do not include your spouse's distributions with yours when determining the amount reported on Form 8880, line 4.
Each individual's distributions are considered separately unless a joint return was filed for the year of the distribution.
For more information about Form 8880, please refer to the form and instructions found here.