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Feature Articles: Taxes

 

Credit for Retirement Savings Contributions

Reviewed and used with special permission from the IRS by: Brenda Procter, M.S., State Specialist & Instructor, Personal Financial Planning, University of Missouri Extension


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:

 

  • Individuals with incomes up to $27,750 ($41,625 for a head of household) and married couples filing jointly with incomes up to $55,000
  • You must also be at least age 18, not a full-time student, and you cannot be claimed as a dependent on another person’s return


You may be able to take the 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 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 (including extension) for that tax return.
 

The Savers 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 Contributions to a 401(k) plan are not subject to income tax until withdrawn from the plan.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, which include the instructions. The publication and forms can be downloaded at IRS.gov or ordered by calling 1-800-TAX-FORM (1-800-829-3676).
 

Source: IRS Tax Tip 2011-36

 


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Last update: Friday, February 24, 2012