If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit, depending on your age and income.
Here are six things the IRS wants you to know about the Savers Credit:
1. Income limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and 2011 income of:
Single, married filing separately, or qualifying widow(er), with income up to $28,250
Head of Household with income up to $42,375
Married Filing Jointly, with incomes up to $56,500
2. Eligibility requirements To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.
3. Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 ($2,000 if filing jointly). The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
4. Distributions When figuring this credit, you generally must subtract distributions you received from your retirement plans from the contributions you made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.
5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
Comments
2 responses to “Retirement Savings Tax Credit Tips”
Thanks for sharing. This week I have been coming across a lot of Roth IRA articles.
Great piece. To the point. Also just want to point out that the tax credit is biggest for those with lower incomes (the percentage deductible varies with your AGI) . So, in light of recent events, people with temporarily reduced income are strongly encouraged to take advantage of the Savers’ Tax Credit, given they meet the criteria listed above.