You may be able to reduce your taxes and plan for your future at the same time. Contributions that you make during the taxable year to certain retirement plans may be deductible. Additionally, other contributions to retirement plans may reduce your gross income. These are treated differently on the Form 1040.
Reductions in gross income resulting from contributions to your employer-sponsored retirement plan will not be reflected on your Form 1040. This includes not only your contributions to an employer-sponsored retirement plan, but also contributions made on your behalf by your employer. Your contributions to retirement plans that result in deductions will be listed on your Form 1040. Those contributions generally serve to reduce your gross income. Credits are the last thing that are reported on your Form 1040 and will reflect an amount you will be receiving against your taxes, as opposed to any amount that you contributed to a retirement plan.
If you meet certain income requirements, you may deduct up to a specified amount of contributions to an individual retirement account -- or IRA -- provided you did not reach age 70½ during the taxable year. To determine your tax deduction for your IRA contributions, fill out the IRA Deduction Worksheet found in the Form 1040 instructions. Once you have determined the amount of your IRA deduction, enter that number on line 32 of the Form 1040.
You will not report any Roth IRA contributions on your Form 1040, as those contributions are made after-tax. This special retirement plan allows taxpayers who meet certain requirements to contribute after-tax money to a retirement plan and withdraw that money tax free in retirement.
Employer's Retirement Plan
Contributions to any employer-sponsored retirement plans are generally made on a pre-tax basis, thereby reducing your taxable income. Your contributions to these plans are not recorded on your Form 1040. These contributions are reflected on the W-2 you receive from your employer, which explains your wages and tax statement and accounts for those contributions to your employer’s qualified retirement plan.
Retirement Savings Credit
The retirement savings contributions credit, otherwise known as the saver’s credit, is found on line 50 of the Form 1040. Taxpayers who earn below a certain amount and make contributions to a qualified retirement plan may be eligible to take this credit. The amount of the credit is based on the amount of your adjusted gross income, your filing status and your credit rate. Attach Form 8880 in order to claim the retirement savings contributions credit.
- IRS: Form 1040
- IRS: Form 1040 Instructions
- IRS: Topic 610 -- Retirement Savings Contributions Credit
- TIAA. "How Much Should I Save Each Month?" Accessed Nov. 2, 2020.
- IRS. "401(k) Resource Guide - Plan Participants - General Distribution Rules." Accessed Nov. 2, 2020.
- IRS. "Income Ranges for Determining IRA Eligibility Change for 2021." Accessed Nov. 2, 2020.
- IRS. "Retirement Plans for Self-Employed People." Accessed Nov. 2, 2020.
- IRS. "Roth Comparison Chart." Accessed Nov. 2, 2020.
- IRS. "Retirement Topics - Contributions." Accessed Nov. 2, 2020.
- GuideStone. "Understanding the Difference Between Roth and After-Tax Contributions." Accessed Nov. 2, 2020.
Kay Lee began freelance writing for Answerbag and eHow in 2010. She is an attorney in Washington, DC, practicing since 2006. Lee specializes in employee benefits and executive compensation. She holds a Juris Doctor from the Columbus School of Law and a Master of Laws from Georgetown University Law Center.