This is what a “gift horse” looks like. The IRS has a sweet deal for something called a Retirement Savings Contributions Credit or “Saver’s Credit”. Check it out.
You can get up to $1,000 tax credit for making eligible contributions to your IRA. Remember a Tax CREDIT is actual dollars reduced off of what you owe in taxes. A credit is much better than a tax write-off or deduction.
The IRS says, “The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.”
I’m impressed how the IRS explains things in such understandable terms. I’m not being facetious! Here’s their example from IRS.gov:
Jill, who works at a retail store, is married and earned $37,000 in 2017. Jill’s husband was unemployed in 2017 and didn’t have any earnings. Jill contributed $1,000 to her IRA in 2017. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $36,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.
The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A). Use the chart below to calculate your credit.
You must be 18 or older, not a full-time student, and not claimed as a dependent on another person’s return. This is not an automatic credit. You need to fill out Form 8880. If you have any questions or believe it is too good to be true, contact your local IRS office.