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Saver’s Credit: Retirement Savings Contribution Tax Credit

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Hand Painted Piggy BankReader TTFK sent me an email this morning about the “Credit for Qualified Retirement Savings Contributions,” also known as the Saver’s Credit, claimed on Form 8880, a tax credit I haven’t covered recently. The Retirement Savings Contribution tax credit is a tax credit, up to $1,000 ($2,000 for joint filers), for contributions you make into qualified retirement accounts. It’s a great incentive for you to save towards your retirement if you’re able to and those who earn less than $26,500 ($53,000 married filing jointly) qualify for some of the tax credit. Unfortunately, if you earn more than that, you don’t qualify.

Qualified Retirement Accounts

These are the retirement accounts that qualify for the Saver’s Credit:

  • A qualified IRA (Traditional or Roth IRA), or,
  • 401(k), or,
  • Governmental 457, or,
  • SEP, or,
  • SIMPLE plan, or,
  • qualified retirement plan as defined in section 4974(c) (including the federal Thrift Savings Plan), or,
  • a 501(c)(18)(D) plan

Tax Credit Phase-Out Schedule

The credit is 50%, 20%, 10%, or 0% of your contribution, less any distributions, based on your income. You only qualify if you have income of less than $26,500, or are a head of household under $39,750, or are married filing jointly incomes of under $53,000. For those that qualify, your tax credit is adjusted based on your income, according to this schedule:

Single Filers: (This also applies to Married filing separately and qualified widow(er)) Tax credit of 50% of your contribution, up to $1000, if you earn less than $16,000. If you earn between $16,000 and $17250, you are eligible to claim a credit of 20% of your contribution, up to $1000. If you earn between $17,250 and $26,500, you are eligible to claim a credit of 10% of your contribution, up to $1000. If your income is above $26,500, you cannot claim this credit.

Head of Household: Tax credit of 50% of your contribution, up to $1000, if you earn less than $24,000. If you earn between $24,000 and $25,875, you are eligible to claim a credit of 20% of your contribution, up to $1000. If you earn between $25,875 and $39,750, you are eligible to claim a credit of 10% of your contribution, up to $1000. If your income is above $39,750, you cannot claim this credit.

Married Filing Jointly: Tax credit of 50% of your contribution, up to $2000, if you earn less than $32,000. If you earn between $32,000 and $34,500, you are eligible to claim a credit of 20% of your contribution, up to $2000. If you earn between $34,500 and $39,750, you are eligible to claim a credit of 10% of your contribution, up to $2000. If your income is above $53,000, you cannot claim this credit.

Double Dipping

This credit is in addition to any other tax benefits you may receive for contributing to your retirement. For example, 401(k) contributions is tax deductible. If you contribute to your 401(k), you would deduct the contributions from your income taxes and still be eligible for this tax credit! Take advantage of this if you’re able to!

(Photo: jbhill)

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11 Responses to “Saver’s Credit: Retirement Savings Contribution Tax Credit”

  1. Cap says:

    Often mention this tax credit to recent college grad buddies that qualifies for it. Additional benefit to what you already get from the retirement account = not too shabby. Just remember that this tax credit is a nonrefundable one, so you can’t take advantage of any excessive amount to get a refund.

  2. Cap says:

    edit: …so you can’t take advantage of any excessive amount to get a refund if you don’t owe any taxes.

  3. SJ says:

    Question. Whenever I read about these things and the eligible income ranges do the ranges occur after tax deductions — like IRA,401k, standard deduction?

    This makes it seem like it does, which is really interesting. Also, this answers a question my friend had earlier; while he had to declare his roth ira :)

    • tahoedrew says:

      I had to go directly to the Form 8880 and then to the Form 1040 to confirm this credit is based on your AGI (Adjusted Gross Income). So yes and no, the income ranges are after all applicable adjustments but before your deductions (standard, itemized, etc.).

  4. Bah! Too bad you can’t claim it if you were a full-time student, or I’d be making a retirement contribution to take advantage of this. Actually, though, I may be able to do it this year, for next year’s taxes. Excellent…. :)

  5. I think this is a great idea and incentive, but the phaseouts are extremely low compared to typical phaseout limits for other credits.

  6. bikerphoto says:

    Can one get this credit on 2008 taxes if contributions to a qualified IRA are made before April 15, 2009?

  7. pat says:

    When was the “Credit for Qualified Retirement Savings Contributions” established? In other words, what year? I just learned about it and wonder if I can also amend my tax forms for previous filings

  8. Jay says:

    does it matter if my retirement savings are AFTER taxes are taken out or before. I contribute to my Retirement fund AFTER TAX, so am I still eligible? I filled out F 8880. Just wondering if it matters if Retire fund contributions are before or after tax.


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