I thought there were no tax deductions for Roth IRA contributions until I saw the IRS Form 8880. Can you take a deduction for a Roth IRA contribution under certain circumstances?
Roth IRA contributions are made “after-tax” – there is never a tax deduction for making a contribution to a Roth. However, there is currently a program called The Retirement Savings Contribution Credit, or “Saver’s Credit,” that provides a tax credit for qualified retirement savings (e.g., traditional IRA, Roth IRA, 401(k), 403(b), etc.). For 2010, if your income is less than $55,500 and you’re married and filing jointly, you could receive a credit of up to $2,000. If your income is less than $27,750 and you’re single, you could receive a credit of up to $1,000.
The IRS Form 8880 that you were looking at allows you to calculate the applicable credit. Remember, a credit could be more valuable than a tax deduction because it provides a dollar-for-dollar reduction of your taxes and not a reduction of your income. This particular credit is not refundable. Therefore, if your tax liability is zero, you will not be entitled to this credit. If you qualify it could be a nice incentive to make your 2010 IRA or Roth IRA contribution before the April 18 deadline. Check out IRS Publication 590 for all the details.