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Saver’s Credit: Retirement Savings Contribution Tax Credit

Posted By Jim On 03/16/2009 @ 3:23 pm In Taxes | 11 Comments

Reader 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 [3], 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 [4]), 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 [5])


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/savers-credit-retirement-savings-contribution-tax-credit.html

[3] Form 8880: http://www.irs.gov/pub/irs-pdf/f8880.pdf

[4] Roth IRA: http://www.bargaineering.com/articles/roth-ira-account-explained.html

[5] jbhill: http://www.flickr.com/photos/jbhill/3383249153/sizes/m/

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