Eligibility for Tax Credit
If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit. The Savers Credit formally known as the Retirement Savings Contributions Credit applies to individuals with a filing status and income of:
Social Security pays the average retiree about 40 percent of preretirement earnings. Call the Social Security Administration at 1-800-772-1213 for a free Social Security Statement and find out more about your benefits at www.socialsecurity.gov.
- Single, with income up to $26,000
- Head of Household, with income up to $39,000
- Married Filing Jointly, with incomes up to $52,000
To be eligible for the credit you must be at least age 18, not a full-time student, and cannot be claimed as a dependent on another person’s return. You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return.
Retirement Savings Contributions Credit
The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the 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 Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
For more information, review IRS Publication 590, Individual Retirement Arrangements and Form 8880, Credit for Qualified Retirement Savings Contributions. The publication and form can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).