Take Advantage of the Retirement Tax Credit

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA), you may be eligible for a tax credit, depending on your age and income.

Here are six things you need to know about the Retirement Tax Credit or Savers Credit:


1. Income limits

• 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

• Must be at least 18 years of age,
  
• 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


The amount of the credit will depend on the adjusted gross income of the individual or household and the size of the contribution. The maximum contribution amount to which this credit can be applied is $2,000. For households with an adjusted gross income of :

$30,000 and under ($22,500 for individuals) the credit rate is 50%.
$30,001 and $32,500 ($22,501 – $24,375 for individuals) the credit rate is 20%.
$32,501 to $50,000 ($24,376 – $37,500 for individuals) the credit rate is 10%.
For example, married couple with a household income of $32,000 contribute $2,000 to a retirement plan will receive a tax credit of $400 ($2,000 x 20%).

4. Qualified plans

• Employer-sponsored plans such as 401(k), SIMPLE and SEP plans,
• Governmental 457 plan,
• Traditional and Roth IRAs. 

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 Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.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.
  
• IRS Publication 590, Individual Retirement Arrangements (IRAs),
  
• Publication 4703, Retirement Savings Contributions Credit
  
• Publications and forms can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676)