What Is A Qualified Retirement Plan As Defined by IRC Sec. 4974(c)?

You may be able to take a credit (Retirement Savings Contribution Credit) of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans.

The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income. When figuring this credit, you must subtract the amount of distributions you have received from any retirement plans from the contributions you have made.

The instructions for Form 8880 state that you must include any distribution you receive from any of the following plans:

- Traditional or Roth IRAs.
- 401(k), 403(b), governmental 457, 501(c)(18)(D), SEP, or SIMPLE plans.
- Qualified retirement plans as defined in section 4974(c) including the federal Thrift Savings Plan).

Unfortunately, the instructions do not include any definition of a Sec. 4974(c) qualified plan.

For most taxpayers, the most important part of Sec. 4974(c) includes a plan described in section 401(a) which includes a trust exempt from tax under section 501(a). What does this mean?

Sec. 401(a) includes stock bonus, pension and profit sharing plans of an employer for the exclusive benefit of his employees or their beneficiaries.

Basically, what Form 8880 is telling you is that any distribution from just about any employer pension plan, must be used to offset any eligible contribution. This does include defined benefit plans (a plan that typically bases your retirement benefits on age, service time and earnings).


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