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 Retirement Savings Contributions Credit applies to:
- Individuals with incomes up to $26,000 ($39,000 for a head of household) and married couples, filing jointly with incomes up to $52,000
- 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 for that tax return.
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 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withdrawn from the plan.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 2006-49
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Last update: Wednesday, March 19, 2008
